Estimating The Fair Value Of MicroStrategy Incorporated (NASDAQ:MSTR)

Estimating The Fair Value Of MicroStrategy Incorporated (NASDAQ:MSTR)

Summary : We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period.

(“Est” = FCF growth rate estimated by Simply Wall St)

Present Value of 10-year Cash Flow (PVCF) = US$1.4b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. In this case we have used the 5-year average of the 10-year government bond yield (1.9%) to estimate future growth. In the same way as with the 10-year ‘growth’ period, we discount future cash flows to today’s value, using a cost of equity of 7.8%.

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$4.9b÷ ( 1 + 7.8%)10= US$2.3b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$3.8b.