Boosted by Bitcoin Holdings and Financial Turnaround

As a business intelligence and analytics company, Microstrategy (NASDAQ:MSTR) has already been listed on the Nasdaq since 1992. And now with its substantial Bitcoin holdings, its market capitalization boosted with high liquidity of daily trading volume, making it eligible to be included in the Nasdaq-100 index.

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The inclusion of Microstrategy to the famous index will take effect on December 23, 2024.

The Nasdaq-100 Index includes 100 largest non-financial companies listed on the Nasdaq stock exchange. Although Microstrategy bought a lot of Bitcoin, it is actually grouped under technology company based on its business segments.

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With high daily trading volume and high market cap, Microstrategy is considered eligible to join the Nasdaq-100 club. There’s actually one more condition to be included: strong financial condition with good corporate governance.

Microstrategy has suffered loss since 2020 with towering debt since the year primarily due to its aggressive investment strategy in Bitcoin.

The strategy of making Bitcoin as a treasury reserve asset was chosen by Microstrategy since 2020 and to support its Bitcoin purchase, they fundraised by issuing debts.

In 2023, Microstrategy seemed to have turned around and sound financially eligible to be included toNasdaq-100. But if we look closely, the net income of $429 million in 2023 didn’t come naturally from its business operation.

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When the operating income only $804k, pretax income of negative $124.5 million, Microstrategy had its net income at positive $429 million in 2023. Wonder why? Tax benefit of $553.6 million is the answer.

Nasdaq-100 index is tracked by many Exchange-Traded Funds (ETFs) and mutual funds including Invesco QQQ Trust, ProShares Ultra QQQ and Direxion Nasdaq-100 Equal Weighted ETF. Inclusion to Nasdaq-100 index will likely propel the stock price even higher.

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This article first appeared on GuruFocus.