Strategy's Q3 net profit exceeded $2.8 billion, a remarkable achievement, but caution is needed regarding the risk of "Bitcoin premium" shrinkage.

Michael Saylor's Bitcoin reserve company, Strategy Inc., reported a remarkable net income of over $2.8 billion in the third quarter, exceeding expectations. However, at least three Wall Street analysts' firms— including Cantor Fitzgerald LP, TD Cowen, and Maxim Group LLC—lowered their target prices following the earnings report. The core concern of the analysts is that the “market adjusted net asset value (mNAV) premium” that Strategy has gained relative to its Bitcoin holdings is continuously shrinking, which will undermine the company's potential for future capital market earnings.

Profits Exceed Expectations but Fail to Impress: Wall Street Focuses on the Shrinking “Bitcoin Premium”

Despite the excellent performance of Strategy's net income, analysts are focusing on the continued decline of stock value in relation to Bitcoin's potential premium capabilities.

• Net income surged: Strategy Inc. recorded a net income of $2.8 billion in the third quarter, exceeding expectations, primarily due to its Bitcoin holdings generating $3.9 billion in unrealized gains.
• Analysts lower target price: After the earnings report was released, several well-known investment bank analysts lowered their target prices, bringing the average target price down to the lowest level since May.
• Core Concern - Shrinking Premium: The main issue analysts are focused on is that the premium obtained by the Strategy compared to its Bitcoin Holdings is rapidly diminishing. TD Cowen analyst Lance Vitanza pointed out that the slow start to the fourth quarter, along with reduced Bitcoin gains and a sharp reversal of Bitcoin premiums, has led to a slowdown in capital issuance.

mNAV Premium Analysis: Key Indicators Affecting Strategy Financing and Valuation

The premium of the market-adjusted net asset value (mNAV) is a key driver of the Strategy stock price, and its decline directly affects the company's valuation and financing ability.

• mNAV premium status: After Strategy shifted its focus to Bitcoin in 2020, its stock began trading at a multiple higher than its underlying Bitcoin Holdings value. This multiple (i.e., mNAV premium) once reached as high as 2 times, but has now reduced to approximately 1.3 times.
• Profit potential impaired: Cantor Fitzgerald analyst Brett Knoblauch emphasized that the reduction in Strategy mNAV premium would decrease its Capital Market profit potential, leading to a lower valuation. Notably, this premium once fell below 1x during the Terra-Luna crisis.

Challenges and High Barriers: Q4 Performance Guidance Requires Bitcoin Price to Break Record

Analysts have questioned the operational revenue target set by Strategy for the fourth quarter, suggesting that achieving this target would require the price of Bitcoin to reach unprecedented heights.

• Q4 target threshold: Knoblauch pointed out that for the Strategy to achieve its expected $20 billion fourth-quarter operating income guidance, the Bitcoin price needs to reach $150,000 by the end of the year.
• Price Gap: Currently, the trading price of Bitcoin is slightly above $110,000, having never historically surpassed $127,000, making the target of $150,000 seem extremely challenging.
• Market Performance and Ratings: Despite analysts lowering their target prices, Cantor Fitzgerald, TD Cowen, and Maxim Group all maintained their buy-equivalent ratings on the stock. Strategy's stock price was not significantly affected by the target price reduction on Friday, instead rising by 7%, but it is still more than 40% below the historical high from November 2024.

Conclusion

Strategy Inc.'s strong Q3 net income demonstrates the tremendous value of Bitcoin as a reserve asset, but analysts' warnings about “premium shrinkage” remind investors to pay attention to the marginal pricing changes in the market regarding Saylor's Bitcoin strategy. The multiple relationship between Strategy's stock price and Bitcoin's net asset value is the lifeline of its valuation, and the continued shrinkage of the premium will compress its profit margin for acquiring more Bitcoin through capital market stock issuance. Whether Strategy can once again expand its mNAV premium will be the focus of the market.