Intrinsic value of MicroStrategy - MSTR

Previous Close

$135.30

  Intrinsic Value

$145.79

stock screener

  Rating & Target

hold

+8%

Previous close

$135.30

 
Intrinsic value

$145.79

 
Up/down potential

+8%

 
Rating

hold

We calculate the intrinsic value of MSTR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  515
  527
  540
  556
  573
  591
  611
  633
  656
  682
  709
  737
  768
  800
  835
  872
  910
  951
  995
  1,040
  1,088
  1,139
  1,193
  1,249
  1,309
  1,372
  1,437
  1,507
  1,580
  1,657
Variable operating expenses, $m
  407
  417
  428
  440
  453
  467
  483
  501
  519
  539
  560
  583
  607
  633
  660
  689
  720
  752
  786
  822
  861
  901
  943
  988
  1,035
  1,084
  1,136
  1,191
  1,249
  1,310
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  407
  417
  428
  440
  453
  467
  483
  501
  519
  539
  560
  583
  607
  633
  660
  689
  720
  752
  786
  822
  861
  901
  943
  988
  1,035
  1,084
  1,136
  1,191
  1,249
  1,310
Operating income, $m
  108
  110
  113
  116
  120
  124
  128
  132
  137
  143
  148
  154
  161
  168
  175
  183
  191
  199
  208
  218
  228
  239
  250
  262
  274
  287
  301
  316
  331
  347
EBITDA, $m
  114
  117
  120
  123
  127
  131
  135
  140
  145
  151
  157
  163
  170
  177
  185
  193
  202
  211
  220
  230
  241
  252
  264
  277
  290
  304
  318
  334
  350
  367
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
Earnings before tax, $m
  108
  110
  112
  115
  118
  122
  125
  130
  134
  139
  144
  149
  155
  161
  167
  174
  181
  189
  197
  205
  214
  223
  233
  244
  255
  266
  278
  291
  304
  319
Tax expense, $m
  29
  30
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  79
  82
  86
Net income, $m
  79
  80
  82
  84
  86
  89
  92
  95
  98
  101
  105
  109
  113
  117
  122
  127
  132
  138
  143
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  352
  360
  369
  379
  391
  403
  417
  432
  448
  465
  484
  503
  524
  546
  570
  595
  621
  649
  679
  710
  743
  778
  814
  853
  893
  936
  981
  1,029
  1,078
  1,131
Adjusted assets (=assets-cash), $m
  352
  360
  369
  379
  391
  403
  417
  432
  448
  465
  484
  503
  524
  546
  570
  595
  621
  649
  679
  710
  743
  778
  814
  853
  893
  936
  981
  1,029
  1,078
  1,131
Revenue / Adjusted assets
  1.463
  1.464
  1.463
  1.467
  1.465
  1.467
  1.465
  1.465
  1.464
  1.467
  1.465
  1.465
  1.466
  1.465
  1.465
  1.466
  1.465
  1.465
  1.465
  1.465
  1.464
  1.464
  1.466
  1.464
  1.466
  1.466
  1.465
  1.465
  1.466
  1.465
Average production assets, $m
  62
  64
  65
  67
  69
  72
  74
  77
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
Working capital, $m
  -31
  -32
  -33
  -34
  -35
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -96
  -101
Total debt, $m
  6
  11
  18
  25
  34
  43
  52
  63
  74
  87
  100
  114
  128
  144
  161
  179
  198
  218
  239
  261
  284
  309
  335
  362
  391
  422
  454
  488
  523
  560
Total liabilities, $m
  250
  256
  263
  270
  278
  287
  297
  308
  319
  331
  344
  358
  373
  389
  406
  424
  442
  462
  483
  506
  529
  554
  580
  607
  636
  667
  699
  732
  768
  805
Total equity, $m
  101
  104
  106
  109
  113
  116
  120
  124
  129
  134
  139
  145
  151
  157
  164
  171
  179
  187
  196
  205
  214
  224
  235
  246
  257
  270
  283
  296
  311
  326
Total liabilities and equity, $m
  351
  360
  369
  379
  391
  403
  417
  432
  448
  465
  483
  503
  524
  546
  570
  595
  621
  649
  679
  711
  743
  778
  815
  853
  893
  937
  982
  1,028
  1,079
  1,131
Debt-to-equity ratio
  0.060
  0.110
  0.170
  0.230
  0.300
  0.370
  0.440
  0.510
  0.580
  0.650
  0.720
  0.780
  0.850
  0.920
  0.980
  1.040
  1.100
  1.160
  1.220
  1.280
  1.330
  1.380
  1.430
  1.480
  1.520
  1.560
  1.610
  1.650
  1.680
  1.720
Adjusted equity ratio
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  79
  80
  82
  84
  86
  89
  92
  95
  98
  101
  105
  109
  113
  117
  122
  127
  132
  138
  143
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  233
Depreciation, amort., depletion, $m
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Funds from operations, $m
  85
  87
  89
  91
  94
  96
  99
  102
  106
  110
  113
  118
  122
  127
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  220
  231
  241
  253
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
Cash from operations, $m
  86
  87
  90
  92
  95
  97
  100
  104
  107
  111
  115
  119
  124
  129
  134
  140
  145
  152
  158
  165
  172
  180
  188
  196
  205
  215
  225
  235
  246
  257
Maintenance CAPEX, $m
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
New CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -25
  -27
  -28
Free cash flow, $m
  78
  80
  82
  84
  86
  88
  91
  94
  97
  100
  104
  107
  111
  116
  120
  125
  130
  136
  141
  147
  154
  161
  168
  175
  183
  191
  200
  209
  219
  229
Issuance/(repayment) of debt, $m
  6
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  6
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
Total cash flow (excl. dividends), $m
  84
  86
  88
  91
  94
  97
  101
  104
  108
  112
  117
  121
  126
  132
  137
  143
  149
  156
  162
  170
  177
  185
  194
  203
  212
  222
  232
  243
  254
  266
Retained Cash Flow (-), $m
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
Prev. year cash balance distribution, $m
  491
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
Cash available for distribution, $m
  573
  83
  85
  88
  91
  94
  97
  100
  104
  107
  111
  116
  120
  125
  130
  136
  141
  148
  154
  161
  168
  175
  183
  191
  200
  209
  219
  229
  240
  251
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  550
  76
  74
  72
  70
  68
  65
  63
  60
  56
  53
  49
  46
  42
  38
  34
  31
  27
  24
  20
  17
  15
  12
  10
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

MicroStrategy Incorporated is a provider of enterprise software platforms around the world. The Company is engaged in the design, development, marketing and sales of its software platform through licensing arrangements, and cloud-based subscriptions and related services. It focuses on providing enterprise customers with software platform and services for deploying intelligence applications. Its platform, MicroStrategy 10, consolidates analytics and mobility in a single platform, available both as on-premise software and as a hosted service offering in MicroStrategy Cloud. Its enterprise platform combines business intelligence functionality with data discovery, mobile analytics and identity intelligence generated by digital credentials. MicroStrategy 10 consists of MicroStrategy Analytics, MicroStrategy Mobile and Usher. MicroStrategy Analytics offers solutions to organizations to analyze a range of data and distribute actionable business insight throughout an enterprise.

FINANCIAL RATIOS  of  MicroStrategy (MSTR)

Valuation Ratios
P/E Ratio 17
Price to Sales 3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 13.9
Price to Free Cash Flow 14.2
Growth Rates
Sales Growth Rate -3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -84.6%
Cap. Spend. - 3 Yr. Gr. Rate -34%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.8%
Ret/ On Assets - 3 Yr. Avg. 10.4%
Return On Total Capital 18.1%
Ret/ On T. Cap. - 3 Yr. Avg. 15.6%
Return On Equity 18.1%
Return On Equity - 3 Yr. Avg. 15.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 81.8%
Gross Margin - 3 Yr. Avg. 79.8%
EBITDA Margin 25.4%
EBITDA Margin - 3 Yr. Avg. 20.5%
Operating Margin 20.9%
Oper. Margin - 3 Yr. Avg. 15.7%
Pre-Tax Margin 22.1%
Pre-Tax Margin - 3 Yr. Avg. 16.7%
Net Profit Margin 17.8%
Net Profit Margin - 3 Yr. Avg. 12.9%
Effective Tax Rate 19.5%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 0%

MSTR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSTR stock intrinsic value calculation we used $505 million for the last fiscal year's total revenue generated by MicroStrategy. The default revenue input number comes from 2017 income statement of MicroStrategy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MSTR stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MSTR is calculated based on our internal credit rating of MicroStrategy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of MicroStrategy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MSTR stock the variable cost ratio is equal to 79.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MSTR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for MicroStrategy.

Corporate tax rate of 27% is the nominal tax rate for MicroStrategy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MSTR stock is equal to 2.8%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MSTR are equal to 12.1%.

Life of production assets of 10 years is the average useful life of capital assets used in MicroStrategy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MSTR is equal to -6.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $591 million for MicroStrategy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 11 million for MicroStrategy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of MicroStrategy at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ MicroStrategy: 1Q Earnings Snapshot   [Apr-26-18 06:03PM  Associated Press]
▶ The highest-paid executive at MicroStrategy in 2017 wasnt its CEO   [Apr-23-18 02:42PM  American City Business Journals]
▶ MicroStrategy to add 300 new jobs at Tysons HQ   [01:35PM  American City Business Journals]
▶ MicroStrategy to Present at Upcoming Technology Conferences   [Feb-20-18 05:35PM  Business Wire]
▶ MicroStrategy reports 4Q loss   [Jan-25-18 04:45PM  Associated Press]
▶ [$$] Michael Saylor Guides MicroStrategy Through Valley of Death   [Nov-13-17 07:52PM  The Wall Street Journal]
▶ [$$] Michael Saylor Guides MicroStrategy Through 'Valley of Death'   [Nov-10-17 09:01AM  The Wall Street Journal]
▶ MicroStrategy posts 3Q profit   [04:51PM  Associated Press]
▶ MicroStrategy to Present at Upcoming Technology Conferences   [Aug-29-17 05:00PM  Business Wire]
▶ Why Shares of MicroStrategy Inc. Fell 30% in July   [Aug-10-17 09:29AM  Motley Fool]
▶ China holds drill to shut down 'harmful' websites   [Aug-03-17 09:58PM  Reuters]
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