MicroStrategy S&P 500 listing ‘probably not’ coming despite stellar performance

Despite MicroStrategy outperforming every stock in the Standard and Poor’s (S&P) 500 over the past four years, market observers are split on whether it could make the index in the near future.

Optimistic voices say it’s only a matter of time. In early September, the median market capitalization in the S&P 500 was $33.5 billion, reported CNBC. Among the 500 largest corporations in the United States that comprise the index, the 250th (i.e., middle point) company had a stock market value of $33.5 billion.

By comparison, MicroStrategy’s market cap was $33.6 billion at the time of writing on Sept. 27, which puts it right in the thick of things. The company is widely viewed as a Bitcoin (BTC) stand-in with 266,000 BTC in its treasury — more than any corporation in the world — but this may not be a problem in the long term, according to some knowledgeable market observers.

Still, an S&P 500 listing is “probably not” coming anytime soon, Seoyoung Kim, associate professor of finance at Santa Clara University’s (SCU) Leavey School of Business, told Cointelegraph. 

The S&P 500 has certain entry requirements. The company must be trading on one of the largest US stock exchanges — such as the New York Stock Exchange, the Nasdaq or the Chicago Board Options Exchange — and generate at least half its revenues in the US. It also has to have an $18 billion market cap or higher. These aren’t problems for the firm, however. 

What is concerning for MicroStrategy, though, is that a candidate must have been profitable in the most recent year and quarter to qualify.

Does MicroStrategy have an earnings problem?

According to Kim, “MicroStrategy has consistently seen a negative bottom line,” with the exception of the fourth quarter of 2024, “which was insufficient to bring it to an overall positive net income.”

Joe Nardini, co-head of investment banking at B. Riley Securities, agreed. “MicroStrategy has a $31 billion market capitalization, so it has the free float to qualify for the S&P 500,” he told Cointelegraph. “The issue that I see is the requirement to be net income positive.”

Achieving the necessary consistency of earnings may not be so easy because of the enormous amount of BTC that the firm carries on its balance sheet, where “the changes in value of the BTC are run through its earnings stream,” noted Nardini. He added:

“That sometimes makes net income negative. So that alone may disqualify MicroStrategy from inclusion in the [S&P 500] index.” 

“I do not think the Bitcoin connection is a problem from a reputational standpoint, but possibly through excessive volatility,” Russell Rhoads, clinical associate professor of financial management at Indiana University’s Kelley School of Business, told Cointelegraph. He added:

“The larger, more mature firms that comprise the S&P 500 are less volatile, so it is possible the price action in MicroStrategy stock, as influenced by Bitcoin volatility, could be a deterrent.” 

Not a “typical” S&P 500 candidate

A larger problem, then, could be that the S&P 500 is a bastion of the traditional corporate world, and MicroStrategy’s unusual structure just doesn’t fit the mold.

Any individual, family, company, or country can copy MicroStrategy and enjoy the same outperformance. #Bitcoin pic.twitter.com/hE37gCUCRQ

— Michael Saylor⚡️ (@saylor) September 22, 2024

As Bank of America’s private bank noted recently, the index is populated by major corporations “with proven earnings and strong balance sheets [that] have historically tended to provide stability, consistent returns and dividends.”

MicroStrategy, because of its “unique” structure, “doesn’t generate revenues and earnings in the sort of consistent manner that SPX listing criteria require,” Steve Sosnick, chief strategist at Interactive Brokers, told Bloomberg earlier this year.

“The [S&P 500] index committee has the final say at the end of the day,” Bitwise’s senior quantitative research analyst Gayatri Choudhury told Cointelegraph. “And in reality, MicroStrategy’s financial profile doesn’t reflect the typical S&P 500 candidate.”

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The firm’s revenue is volatile, continued Choudhury, and it lacks “the consistent earnings or business model that the index usually demands. While it’s a data analytics company on paper, its real draw is its enormous Bitcoin holdings.”

The company’s financials continue to be volatile due to fluctuations in the BTC price. “That makes it less attractive to the S&P committee, which favors a more conservative approach,” said Choudhury, who doesn’t expect MicroStrategy to join the…