Bitcoin Adoption And Regulatory Normalization Will Drive Massive Long Term Earnings Power

Catalysts

About Strategy

Strategy operates as a digital treasury and structured finance company that uses digital capital and digital credit instruments to maximize Bitcoin per share for equity holders.

What are the underlying business or industry changes driving this perspective?

• Accelerating institutional and governmental embrace of Bitcoin as digital capital is expanding the addressable pool of spot ETF flows, corporate treasuries and bank balance sheets, which supports higher Bitcoin prices over time and directly lifts Strategy’s Bitcoin NAV, operating income and net earnings.
• The company’s first-time S&P credit rating, together with growing acceptance of Bitcoin as eligible collateral by major banks, is opening much larger high-yield capital pools and, over time, potential investment-grade capital pools. This can lower the effective cost of capital and expand net margins as more cheap capital is converted into Bitcoin.
• Scaling of Strategy’s digital credit factory, including STRC, STRK, STRD and STRF, is creating a differentiated, tax-deferred income platform that can capture flows out of traditional money markets and private credit, driving recurring dividend streams and structurally higher revenue from preferred offerings.
• Globalization of Bitcoin-backed preferreds into markets such as Canada, Europe and Asia, with products tailored in local currencies, positions Strategy to tap regions with structurally lower risk-free rates. This should support premium pricing on yield products and enhance long-term earnings power.
• Ongoing regulatory normalization, including fair value accounting for Bitcoin and favorable CAMT and ROC treatment, increases balance sheet transparency and after-tax yields for investors. This supports higher valuation multiples and sustained growth in EPS and Bitcoin per share accretion.

Assumptions

This narrative explores a more optimistic perspective on Strategy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Strategy's revenue will grow by 5.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1625.4% today to 5201.1% in 3 years time.
• The bullish analysts expect earnings to reach $29.0 billion (and earnings per share of $75.11) by about December 2028, up from $7.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $12.8 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 6.7x today. This future PE is lower than the current PE for the US Software industry at 31.5x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Strategy’s model is structurally tied to Bitcoin’s long term performance and volatility, so any prolonged period of weak or declining Bitcoin prices relative to the aggressive assumptions embedded in guidance, such as the 30 percent BTC yield target and expectations for 30 percent annual BTC appreciation over 20 years, would constrain BTC accumulation, compress Bitcoin net asset value and materially reduce operating income and earnings growth.
• The company’s plan to expand its digital credit factory globally, including launching new preferred products across multiple currencies and jurisdictions, depends on complex and evolving regulatory, tax and securities regimes, and any adverse rulings, delays or restrictions on Bitcoin backed instruments or return of capital treatment could slow capital inflows into preferreds, limit balance sheet expansion and lower long run revenue and net margins from these products.
• Strategy’s growing reliance on perpetual preferred equity and equity issuance to fund Bitcoin purchases and service approximately 689 million dollars of annual dividends and interest, together with a stated willingness to keep amplifying BTC exposure, increases sensitivity to market conditions. If mNAV remains compressed or falls below 1 times for an extended period, the need to preserve ROC treatment while avoiding dilutive equity issuance could force less attractive funding options, including selling high basis Bitcoin, which would pressure Bitcoin per share, constrain amplification and weaken earnings momentum.
• The business case for digital credit rests on persistent tax and yield advantages, particularly the assumption that ROC dividends will remain available for 10 years or more and that Strategy’s instruments will continue to offer multiple times the tax equivalent yield of traditional credit. If tax rules, accounting treatment or market risk free rates shift in ways that erode this spread, demand for STRC, STRK, STRD and STRF could fall, reducing preferred issuance volumes, fee and yield economics and ultimately lowering revenue and net margins from the structured finance platform.
• The vision of Bitcoin being fully recognized as digital capital by banks, credit rating agencies and Basel style regulatory frameworks remains aspirational. If large financial institutions or rating bodies move more slowly than management expects in accepting Bitcoin as eligible collateral or risk capital, Strategy could be locked out of the much larger investment grade pools it is targeting, keeping its S&P rating in high yield territory, elevating its long term cost of capital and limiting the upside in earnings and return on equity that underpins the bullish valuation narrative.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Strategy is $705.0, which represents up to two standard deviations above the consensus price target of $491.07. This valuation is based on what can be assumed as the expectations of Strategy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $705.0, and the most bearish reporting a price target of just $200.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $557.7 million, earnings will come to $29.0 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $178.99, the analyst price target of $705.0 is 74.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.