Navigating Bitcoin Investments: MicroStrategy (MSTR) vs. Riot Platforms (RIOT)


Navigating Bitcoin Investments: MicroStrategy (MSTR) vs. Riot Platforms (RIOT)

Amid Bitcoin’s remarkable 150% surge this year, investors eye MicroStrategy (NASDAQ: MSTR) and Riot Platforms (NASDAQ: RIOT) as distinctive avenues to ride the crypto wave. While both companies have seen meteoric stock gains mirroring Bitcoin’s rally, the question arises: should investors chase these high-flying Bitcoin-related stocks at their current valuations?

  1. MicroStrategy: A Two-Fold Business
    • Established 34 years ago, MicroStrategy operates as a data mining and analytics company. In 2020, a strategic shift occurred under then-CEO Michael Saylor, leading MicroStrategy to allocate cash from its software business to significant Bitcoin purchases.
    • With BTC holdings exceeding $4.7 billion, approximately 40% of MicroStrategy’s enterprise value, the company’s profitability has been impacted by rising BTC impairment charges. While it anticipates a return to profitability, its core software business faces challenges with sluggish revenue growth.
    • Investors weigh the potential enterprise value surge as BTC investments continue against concerns about the already baked-in stock valuation at 21 times next year’s sales.
  2. Riot Platforms: A Focused BTC Play
    • Originally a patent holding company, Riot Platforms transformed into a dedicated BTC miner in 2017. With a substantial fleet of over 112,000 miners, Riot’s core business revolves around Bitcoin mining.
    • The company holds both Bitcoin and sells excess power back to the grid, contributing to its revenue. In 2022, Riot experienced a 22% revenue increase to $259 million, accompanied by a widened net loss due to BTC price fluctuations and energy cost spikes.
    • Analysts project a 14% revenue rise to $294 million in 2023, emphasizing Riot’s potential for growth as Bitcoin’s price climbs. With a low debt-to-equity ratio of 0.1 and an enterprise value of $2.9 billion, Riot appears comparatively undervalued at 6 times next year’s sales.
  3. Investor Dilemma: A Direct Bitcoin Approach or Leveraged Stocks?
    • The debate between directly buying Bitcoin and investing in capital-intensive companies like MicroStrategy and Riot persists. While Bitcoin’s direct ownership remains a straightforward approach, stock investments offer leveraged exposure to Bitcoin’s performance.
    • Choosing between the two involves evaluating risk tolerance, growth expectations, and the perceived alignment of the company’s strategy with Bitcoin’s future trajectory.
  4. The Verdict: Riot Platforms Edges Ahead
    • Despite reservations about investing in Bitcoin-centric companies, if forced to choose, the preference leans towards Riot Platforms. Its simpler business model, stable growth rates, healthier balance sheet, and a seemingly more attractive stock valuation relative to growth potential position it favorably.

In the dynamic landscape of Bitcoin investments, investors must carefully weigh the pros and cons of direct ownership versus indirect exposure through companies like MicroStrategy and Riot Platforms, aligning their decisions with individual investment goals and risk profiles.

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