MicroStrategy (MSTR 0.39%) is doubling its Bitcoin (BTC 1.10%) investment again. This time, the economic intelligence company is asking shareholders to foot the bill.
What does MicroStrategy do?
MicroStrategy disclosed a public market stock offering in a pair of regulatory filings released after the closing bell last Friday. The company wants to raise up to $500 million through this stock sale, which could happen in a single lot or in a series of deals over time. Realistically, MicroStrategy and its banking partners want to expedite this process, perhaps as early as Monday, September 12. Future repositories will tell this story.
The resulting $500 million cash inflow (less a 2% commission for bankers) is technically for “general corporate purposes” including, but not limited to, the purchase of more bitcoins. However, you should be aware that MicroStrategy has recently raised funds in many forms for the distinct purpose of buying Bitcoin. There is no reason to believe that this share sale will be used for any other purpose.
What does this decision mean for MicroStrategy investors?
This stock sale is a big deal.
Issuing enough stock to raise $500 million on the open stock market is no small feat as the stock’s total market value stood at $2.96 billion at the time of these filings. . The number of shares could rise by around 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 greater number of smaller tranches.
Stock sell-offs tend to weigh on stock prices as investors adjust to the dilution of incoming stocks. However, MicroStrategy shares are trading just 2% lower at the time of writing.
The magnitude of this investment
The modest share price decline suggests that investors see serious value in MicroStrategy’s overbuying of Bitcoin. It is not a surprise. The stock price made similar moves when the company raised $205 million through a term loan in March 2022. A debt offer of $500 million in June 2021 was met by a 25% increase on five days of MicroStrategy’s stock chart. In both cases, the proceeds went directly to buy more Bitcoin.
Therefore, MicroStrategy investors seem to agree with the company’s goal of grabbing 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 spree.
MicroStrategy’s balance sheet held 129,677 Bitcoin on September 8, according to stock sale documents. That’s about $3.78 billion at current Bitcoin prices, versus $2.4 billion in long-term debt. Actual cash reserves are hovering around the $70 million mark as the company continues to invest every spare penny in more Bitcoin. The proposed stock sales could yield around 22,500 Bitcoin at these prices, increasing the digital asset pool by 17%.
How does MicroStrategy’s Bitcoin philosophy work?
Buying Bitcoin is a declared business strategy, alongside the growth of the business analytics software business. Chairman Michael Saylor sees Bitcoin as an effective long-term hedge against inflation, and the digital currency is also expected to rise in value as the cryptocurrency market matures.
“The current wave of streamlining, regulation and crypto innovation is healthy for this industry over the medium to long term,” Saylor said on the August second-quarter earnings call. “And we expect Bitcoin to be the main beneficiary of all of these trends.”
If Bitcoin ends up gaining long-term value, MicroStrategy will see a strong return on these digital investments. 2022 has been a painful year for crypto investors – unless you’re an active buyer and want to buy more Bitcoin at a low price. If Michael Saylor’s Bitcoin strategy works as expected, 2022 will be remembered as a year of wealth creation. Otherwise, it goes down in history as a costly mistake.
So you can think of MicroStrategy as a direct investment in bitcoin, amplified 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 approve of the idea.