By: Omkar Kharkar

Short: Microstrategy Inc.(NASDAQ: MSTR)

By: Omkar Kharkar

McIntire Investment Institute

Analyst Presentation

Background� Business Intelligence – using technology to improve one’s business (BI)

� Companies require it to manage, process and analyze vast amounts of data

� Performed by specialized companies with � Performed by specialized companies with complex software to analyze databases

� Run as software on a client’s server

� Final output is shown by a presentation layer

Business Model

1• BI company develops the logic behind the software (its functionality)

2• Creates programs that are sold as copyrighted software to clients

• BI company markets the software to attract clients3

• BI company markets the software to attract clients

4• Client purchases licenses of the software to run on its servers

5• BI company makes a profit by selling these licenses and its required technical support

Overview� Small-cap, valued at $800 million; targets mid-cap companies

� Software Company, specializes in business intelligence, querying and reporting

� Has two products:� Software� Software

� Servers (to run their software)

� Recently released their latest software, Microstrategy 9

� Software allows OLAP reporting in multi-dimensional databases

� MSTR uses ROLAP technology

Value Added Research SourcesMr. Manoj Rewatkar

President & CEO, Ritek Solutions Inc.

Mr. Girish Kharkar

Enterprise Performance Management and BI

Architect

Main Points1. Inferior Technology

2. Strong BI competition

3. Bad business practices

Technology� New, developing technology RIAs (Rich Internet Applications) in the market

� Web-based output cannot compete with products from companies such as Adobe or Microsoft’s SilverlightSilverlight

� Allow same features as MSTR’s dashboards, but with better presentation layers

Strong BI Competition� Cannot compete with companies such as Microsoft and Oracle

� Low market share, due to recent mergers in BI industry

� Superior performance by these companies, along with � Superior performance by these companies, along with product lines.

� Many missing components in the software framework – MOLAP, ETL

� OBIEE – Market Leader - A Fusion Intelligence platform from Oracle Corp.

Competition (cont.)Magic Quadrant for BI Platforms, 2008, Gartner Research

Bad Business Practices� Service department for BI installation and technical support are both very weak

� Microstrategy 9 license is available for free, a major loss of revenue (26%)

Financial Metrics� Last Trade: 67.55 Shares Outstanding: 11.901 million

� No Dividend Yield

� 52 Week High: $68.19 52 Week Low: $30.55

� Book Value : $14.35 Price/Book : 4.53� Book Value : $14.35 Price/Book : 4.53

� Price/Earnings : 18.75

� Price/Sales : 2.19

� Beta: 1.68

� EPS (TTM): 3.55

� Return on Equity: 30.53 Profit Margin: 12.31

Metrics (cont.)� Avg. Target Price : 46.00

� PSR : 2.24 Short ratio: 11.3

� ROA: 18.60 PEG: 1.62

� Enterprise Multiple: 8.588

Hold for the Intermediate term: 1- 2 years� Hold for the Intermediate term: 1- 2 years

Risks� Recession continues to cause mass demand for BI

� Companies won’t change, and keep renewing with Microstrategy

� Adapts or improves product line to stay � Adapts or improves product line to stay competitive at low costs

� Gains new business from mid-cap firms

Catalysts� Service department degrades and forces customers to switch

� RIA technology becomes widely used

� Cannot compete with large firms due to resources, technology and client requirementsresources, technology and client requirements

� Accounting and liability issues

� Dependent on ONE product line

The End

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