What is MicroStrategy doing?
MicroStrategy disclosed a stock offering on the public market in a pair of regulatory filings posted after last Friday’s closing bell. The company wants to raise up to $500 million from this stock sale, which could take place in a single batch or a series of transactions over time. Realistically, MicroStrategy and its banking partners want to push through this process quickly, perhaps as soon as Monday, September 12. Future filings will tell that tale.
The resulting cash inflow of $500 million (minus a 2% fee to the bankers) is technically earmarked for “general corporate purposes,” including but not limited to the purchase of more Bitcoins. However, you should know that MicroStrategy has recently been raising cash in many forms for the distinct purpose of buying Bitcoin. There is no reason to believe that this stock sale will serve any other purpose.
What does this move mean to MicroStrategy’s investors?
This stock sale is a big deal.
Issuing enough shares to collect $500 million on the open stock market is not small potatoes when the stock’s total market value stood at $2.96 billion when these documents were filed. The share count may increase by roughly 17%, based on Friday’s stock prices. The market value of each share will be diluted by the same amount, as the same market value is divided into a larger number of smaller slices.
Huge stock sales tend to weigh on stock prices, as investors adapt to the incoming share dilution. However, MicroStrategy’s stock is trading just 2% lower at the time of writing.
The scale of this investment
The modest share-price drop suggests that investors see serious value in MicroStrategy’s binge-buying of Bitcoin. That’s no surprise. Share prices made similar moves when the company raised $205 million from a term loan in March 2022. A $500 million debt offering in June 2021 was met by a five-day rise of 25% in MicroStrategy’s stock chart. In both cases, the proceeds went directly into buying more Bitcoin.
Hence, MicroStrategy’s investors appear to be on board with the company’s focus on grabbing as much Bitcoin as it can manage. The term loan and senior notes asked creditors to carry the risk of unpredictable Bitcoin prices. This time, the company is asking shareholders to take responsibility for another Bitcoin spree.
MicroStrategy’s balance sheet held 129,677 Bitcoins on September 8, according to the stock-sale filings. That’s worth approximately $3.78 billion at current Bitcoin prices, balanced against $2.4 billion in long-term debt. Actual cash reserves hover around the $70 million mark, as the company continues to invest every spare penny in more Bitcoin. The proposed stock sales could bring in approximately 22,500 Bitcoins at these prices, increasing the digital asset stash by 17%.
How is MicroStrategy’s Bitcoin philosophy working out?
Buying Bitcoin is a stated corporate strategy, alongside growing the enterprise analytics software business. Chairman Michael Saylor sees Bitcoin as an effective long-term hedge against inflation, and the digital currency should also gain value as the cryptocurrency market matures.
“The current wave of crypto rationalization, regulation, and innovation is healthy for this industry over the mid and the long time frame,” Saylor said in August’s second-quarter earnings call. “And we expect Bitcoin will be the prime beneficiary of all these trends.”
If Bitcoin ends up gaining value in the long term, MicroStrategy will see a strong return on these digital investments. 2022 has been a painful year for crypto investors — unless you are an active buyer and want to pick up more Bitcoin at low prices. If Michael Saylor’s Bitcoin strategy works out as planned, 2022 will be remembered as a wealth-building year. If not, it’s going down in history as a costly mistake.
So you can view MicroStrategy as a direct investment in Bitcoin, magnified by the company’s ability to tap into many different financial resources to grow its Bitcoin reserves. This time, it’s a stock sale — and shareholders are giving that idea a big thumbs-up.