Summary MicroStrategy's re-branding and merchandise store signal the company's encouragement of dangerous emotional attachment to the stock. Strategy's declining software revenue and high volatility make the common stock a decent trading vehicle but a potentially dubious investment. Despite a healthy balance sheet, MSTR's volatility and premium to Bitcoin holdings make it a risky bet compared to Bitcoin itself. Preferred shares and convertibles may be better options for exposure, but MSTR common shares are not advisable due to dilution and premium risks. MicroStrategy Overview Following what has been an absolutely fantastic multi-year rally for the company formerly known as MicroStrategy ( MSTR ), I believe we are getting closer to the thrilling climax of this fascinating Wall Street tale. From a split-adjusted low of $13 per share in December 2022 to a high of $543 in November 2024, the ride MSTR shareholders have been on during this Bitcoin ( BTC-USD ) bull run has been nothing short of phenomenal. Assuming, of course, said shareholders didn't enter the trade in the second half of November - in which case, this likely hasn't been much fun at all. I've covered the company, now called Strategy, a handful of times going back the last 14 months. In my opinion, MicroStrategy is the most polarizing company that I can recall following in my time writing for Seeking Alpha. MicroStrategy: It's All About MacroStrategy MicroStrategy: Too Far, Too Fast MicroStrategy's 'Infinite Money Glitch' There are dedicated bulls, committed bears, and those of us who are perfectly content with watching this from the sidelines after pocketing some profit on the way up. After exiting my long position in early 2024, you can put me in the latter group. Personally, I think it's wiser to put capital into Bitcoin directly or one of the spot ETFs at this juncture. A 160% premium to BTC holdings via MSTR implies a BTC price of $171k BTC. Assuming BTC gets that high, I suspect the better return from here will be in BTC rather than MSTR. As was the case the last time I covered MSTR for SA, my choice of remaining allocated to spot over MSTR has again resulted in underperformance: Data by YCharts Tough life when you can only muster 47% in a little over three months. I digress. In this update, we'll look at the company's corporate re-brand, takeaways from the February 5th earnings report, and I'll get into why I believe the there is minimal upside remaining specifically for MSTR. Jumping The Shark Moment - MicroStrategy Is Now "Strategy" Prior to releasing full year 2024 earnings on February 5th, the company announced a re-branding that sees the word 'Micro' dropped from the corporate name and a stylized 'B' representing the company's Bitcoin strategy added to the logo. Perhaps a perfect embodiment of Strategy's transformation , the company has quite literally attached its name to Bitcoin with the corporate re-brand: Corporate Rebrand (X.com/@Saylor) During the conference call and prior to getting into performance metrics, CEO Phong Le mentioned the company's re-brand and also elaborated on the logo's color change to orange due to it representing "energy, intelligence, and Bitcoin." This was right before the announcement of a merchandise store featuring company-branded shirts and hats for the retail investors who wish to support Strategy's corporate journey similar to the way they might support a sports team. I can't stress this enough; this is absolute danger zone behavior . In my decade-plus of investing, I've never found an investment advisor who recommended having emotional attachment to a stock. In fact, it has always been quite the opposite. Yet, we have a Nasdaq-100 company now openly inviting fan-like behavior from its shareholders. It's not a good look. But it brings us to what I believe ' The Bitcoin Alchemist ' is tapping into. Through the years, the faith that is given to Bitcoin by its most loyal advocates has resembled something reminiscent of an organized religion. At the 'Altar of Satoshi,' there is likely no greater prophet today than Strategy co-founder and Executive Chairman, Michael Saylor. His gift of gab is so impressive, he can equate Bitcoin to a waterfall or call it 'digital energy' and almost make sense. However, these fantastic analogies are mere distractions from a new business model that can't reasonably be sustained. Strategy Q4 2024 Earnings Takeaways For the quarter ended December, Strategy reported $120.7 million in top-line revenue from its software business. This was the second consecutive YoY decline in the top line by both Q4 and full-year performances: Revenue, millions Quarter Ended December Full Year 2022 $132.6 $510.8 2023 $124.5 $499.3 2024 $120.7 $463.5 YoY -3.05% -7. 17% Source: Strategy, Seeking Alpha Subscription services revenue were an actual business highlight in the quarter, as gains there continue to help offset declines in product licenses and product support. Total opex here is a bit jarring on the surface with a $1 billion loss from operations: Q4-24 (Strategy) However, this is primarily attributed to a digital asset impairment losses that will be alleviated with FASB accounting rule adoption in the next quarterly report. Stripping that out, MSTR only lost $10.4 million from operating the software business. While this might seem immaterial in the grand scheme of things, I think it would behoove MSTR common stock shareholders for Strategy to be able to fund its interest obligations with earnings from an actual business. Without that, the company may either have to sell Bitcoin from its corporate treasury or attempt to refinance what are already really advantageous borrowing rates. Volatility, Yield & BTC-Premium If I can give Strategy a genuine compliment, the real time KPI transparency living right on the company's new homepage is a very useful tool for the market and I hope shareholders pay attention to it on a regular basis. Strategy.com The $72.2 billion in MSTR open interest puts Strategy ahead of Alphabet ( GOOG ) (GOOGL) and within striking distance of Amazon ( AMZN ) despite having a market capitalization that is a small fraction of the roughly $2.4 trillion valuations of each of those companies. This level of OI and the volatility that comes with it, thanks to Bitcoin, has given MSTR shares an implied volatility figure over 90% - far higher than fellow retail-darlings Tesla ( TSLA ) or NVIDIA ( NVDA ). Strategy Strategy's common stock volatility is important because it is essentially the entire business model for the company today given the declining, unprofitable software business. Whether they all realize it or not, MSTR shareholders are the product being offered by this company and that can be a very dangerous game to play. The share price premium over the BTC value represented by common stock equity briefly went above 240% in November. mstr-tracker.com When the premium to Strategy's Bitcoin gets as extreme as it did in November, the direct result was the company buying more Bitcoin with nearly $18 billion in fresh capital through convertibles and common stock issuance. Buying the BTC with new money from the company's ATM resulted in a 21% QoQ increase in shares outstanding but a 77% increase in Bitcoin held by the company. Even when assuming full dilution from converts, the "BTC Yield" in the quarter came in at 48%. If you like Bitcoin, this is indeed impressive. Data by YCharts Despite what is seemingly a master class in corporate capital allocation, MSTR shares are down nearly 30% from the BTC-premium peak on November 20th. In fact, adding more Bitcoin to Strategy's treasury since that time has only resulted in the BTC-premium falling quite substantially over the last two months; that figure is currently down to 89%. What makes this Bitcoin capital engine so interesting to watch is this is now happening with implied volatility declining? MSTR IV30 Trend (MarketChameleon) Going back to that November share price peak, OI and implied vol have both been going down, and the trend is not encouraging. At 88, implied volatility has been below its 20-day moving average for most of the last two months. This declining implied volatility could potentially inhibit Strategy's ability to raise more capital through convertibles since it's the volatility in the common shares that makes those bonds so attractive. Shorting MSTR Is Still Not Wise In My View Strategy's balance sheet is actually quite healthy provided Bitcoin's price doesn't completely collapse. Even in the event the market tries to take the coin under Strategy's cost basis of $65k per coin, the $45 billion BTC stack is more than enough to pay off the company's obligations of $7.3 billion debt and have plenty left over. Even at an 'unthinkable' $35k BTC price, Strategy has double the BTC liquidity needed to cover debt. Strategy Moreover, the Bitcoin stack is unencumbered and Strategy's debt maturities don't start to kick in until Q3 2028. There are a variety of ways Strategy can earn revenue from its assets between now and then, including lending out the BTC to counter-parties. I suspect the company's bankruptcy risk is very low. That doesn't mean MSTR shares are a great hold and I suspect the $15.1 billion in common stock from the ATM last quarter will get at least a few common shareholders thinking about their positions. There are certainly scenarios in which BTC can continue higher while MSTR declines. Furthermore, in the event BTC declines, it's difficult to see how MSTR doesn't follow and to a larger degree. Final Takeaways With full recognition that this article is likely not expressing a popular opinion for 'fans' of Strategy, Bitcoiners, or even many of my own followers, I have to call it like I see it. I could certainly be wrong and indeed have been wrong about MSTR since I downgraded it to 'hold' last March. But I'm just not seeing how this experiment ends well for MSTR shareholders. I think there's a very real possibility Bitcoin's price top is already fairly close for this cycle and shared the details of that theory in a recent Fidelity Wise Origin Bitcoin Trust ( FBTC ) piece for Seeking Alpha. Investors have multiple different ways to get exposure to Strategy's volatility factory should they be so inclined; there are convertibles, preferred shares go live on February 6th, and of course there are the common shares. You could actually talk me into the preferred shares and the convertibles have their place in the game. But due to the premium, the dilution risk, and the raw exposure to Bitcoin's price, my view is MSTR shares are a bad way to go about both Strategy exposure and Bitcoin exposure at this juncture.