Quick Summary

Microstrategy (MSTR) is a business intelligence (BI) software provider. Business intelligence software organizes and presents huge stores of data in a way that allows analysts and executives to make important strategic decisions. Microstrategy earns revenues in a variety of ways. Software product licenses (around 18% of revenue) consists of licenses for on-site installations of its software. Subscription services (6%) are annual subscription fees to use Microstrategy's "cloud" hosted software offerings. The largest category, by far, are product support revenues (60%), consisting of recurring technical support and maintenance contracts. Finally. the "other services" umbrella (16%) provide consulting and education service offerings.

Does The Company Have Recurring And/Or Rising Revenues?

SOMEWHAT. For certain, the bulk of Microstrategy's revenues are of a recurring nature, including subscription and product support. On-site licensees generally pay for recurring maintenance and support, while cloud-based users pay recurring subscription fees. That means about 70% of Microstrategy's revenue base is from recurring sources (product licenses and other services are more transactional sales). Growth has been a challenge. Microstrategy's 3 year average annual revenue growth rate is negative at -2%, and the company earns less revenue then it did a decade ago. That's not encouraging. In what has been a growth market, Microstrategy has not had much success transitioning to the cloud model. Given this, and the fact that it faces many cloud-based competitors that are eating market share, we don't see much of a growth future for this company.

Does The Company Have Durable Competitive Advantages?

SOMEWHAT. Like most business software, we feel there are some level of HIGH SWITCHING COSTS for an enterprise to change their fundamental BI platforms, as it is a large effort in both time and money from an IT (implementation) perspective and a business (education and usage) one. However, we see these switching costs as not insurmountable, as BI platforms leverage data stores that can be relatively easy to migrate to new analysis platforms, and do not usually manage or collect data in a proprietary way.

GreenDot Rating: RED

Despite having a reasonably recurring revenue base, and some switching costs due to its business-critical nature, the lack of progress from Microstrategy in evolving into a modern cloud-based software firm really limits the upside for the stock. The analytics and BI markets have been growing at incredible rates (over 25% annually), yet Microstrategy has been contracting. We think the industry has passed them by, and there is little chance that they will be able to catch up. We see the firm as either eventually being bought out (at a very modest premium) or slowly withering away. It gets a RED (unattractive) business model rating.