MicroStrategy is buying more Bitcoin, with shareholders footing the bill

by James · September 13, 2022

Micro strategy (MSTR 0.39%) doubles on his Bitcoin (BTC 1.36%) investment again. This time, the business intelligence company is asking shareholders to foot the bill.

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What does MicroStrategy do?

MicroStrategy disclosed a stock offering on the public market in a pair of regulatory filings posted after last Friday’s closing bell. The company is looking to raise up to $500 million from this share 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 story.

The resulting cash flow of $500 million (minus a 2% fee to bankers) is technically earmarked for “general corporate purposes,” including but not limited to buying more Bitcoins. However, you should know that MicroStrategy has recently raised money in many forms for the specific purpose of buying Bitcoin. There is no reason to believe that this inventory sale will serve any other purpose.

What does this move mean for MicroStrategy’s investors?

This stock sale is a big deal.

Issuing enough shares to raise $500 million on the open stock market is no small feat when the stock’s total market capitalization was $2.96 billion when these documents were filed. The share count could increase by approximately 17%, based on Friday’s share 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.

Large stock sales tend to weigh on stock prices, as investors adjust to the incoming stock dilution. However, MicroStrategy’s stock is trading just 2% lower at the time of writing.

The extent of this investment

The modest share price drop suggests that investors see serious value in MicroStrategy’s binge buying of Bitcoin. It’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 with a five-day gain of 25% in MicroStrategy’s stock chart. In both cases, the proceeds went directly to buying more Bitcoin.

Therefore, it appears that MicroStrategy’s investors are on board with the company’s focus on acquiring as much Bitcoin as it can handle. The term loan and senior notes asked creditors to bear the risk of unpredictable Bitcoin prices. This time, the company is asking shareholders to take responsibility for another Bitcoin ride.

MicroStrategy’s balance sheet contained 129,677 Bitcoins on September 8, according to the stock sale documents. That’s worth roughly $3.78 billion at current Bitcoin prices, balanced against $2.4 billion in long-term debt. Actual cash reserves hover around $70 million, as the company continues to invest every extra penny into more Bitcoin. The proposed share sale could bring in approximately 22,500 Bitcoins at these prices, increasing the digital asset holdings by 17%.

How does MicroStrategy’s Bitcoin philosophy work?

Buying Bitcoin is a stated corporate strategy, as well as expanding the 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 to long term,” Saylor said in August’s second-quarter earnings call. “And we expect Bitcoin to be the biggest 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 looking to pick up more Bitcoin at low prices. If Michael Saylor’s Bitcoin strategy works as planned, 2022 will be remembered as a wealth-building year. If not, it will go down in history as a costly mistake.

So you can see MicroStrategy as a direct investment in Bitcoin, magnified by the company’s ability to leverage many different financial resources to increase Bitcoin reserves. This time there is a share sale – and the shareholders give that idea a big thumbs up.