Saylor’s Strategy: buy higher, pump harder

Few tales in company finance are as audacious, bewildering, or downright entertaining as that of the corporate formerly known as MicroStrategy. This once-humdrum business-software vendor has remodeled right into a high-octane bitcoin funding car beneath the flamboyant management of Michael Saylor, its co-founder and government chair. The corporate, now called Strategy, holds nearly 500,000 bitcoins, equal to 2.38 per cent of the whole provide, acquired at a median value of round $66,000.

What captivates markets isn’t simply the dimensions of Technique’s bitcoin accumulation however the relentless monetary engineering underpinning it. The most recent manoeuvre is the announcement final week of a $21bn “at-the-market” (ATM) offering of STRK, a convertible perpetual most well-liked inventory at present yielding greater than 9 per cent (payable on the firm’s discretion in money or frequent inventory). The proceeds will likely be used, predictably, to purchase extra bitcoin.

At right this moment’s bitcoin value of round $80,000, Technique might amass one other 262,500 bitcoins, bringing its whole holdings to three.6 per cent of all bitcoin in existence. According to JPMorgan research, “MicroStrategy’s bitcoin purchases alone accounted for 28 per cent of final yr’s file capital influx into crypto markets.” It’s no exaggeration to say that Technique will not be merely a significant participant however the market itself — a blue whale consuming all of the accessible krill within the bitcoin ocean.

This newest monetary feat follows scorching on the heels of a $42bn ATM issuance of frequent inventory and debt introduced on Halloween 2024 — a becoming date for a corporation that thrives on monetary trick-or-treating. On the time, Technique’s shares closed at $244.50. The election of Donald Trump despatched the inventory hovering, reaching an intraday peak of $543 on 20th November, however it has since fallen to half that stage. The rollercoaster trip has been white-knuckle stuff.

On the coronary heart of this bitcoin bonanza is an anomaly few funding corporations can replicate: Technique’s inventory trades at a persistent premium to its web asset worth. Most funding trusts struggle to avoid trading at a discount, typically inviting shareholder activism and strain to purchase again shares. Not so for Technique, whose inventory has commanded a premium as excessive as 3.8 occasions NAV, at present standing at round 1.7 occasions. This valuation anomaly has enabled the corporate to difficulty fairness and equity-linked devices aggressively, utilizing the proceeds to accumulate but extra bitcoin. It’s a self-reinforcing cycle that has cemented Technique’s standing as a Wall Avenue obsession (and massive investment banking fee-payer) and a bitcoin juggernaut.

But, therein lies the rub. Technique’s legacy software program enterprise doesn’t generate money. Servicing the excessive dividend on STRK would require additional monetary engineering, almost definitely by way of extra fairness issuance. This may inevitably result in dilution for present frequent stockholders. STRK, in impact, functions as a perpetual payment-in-kind instrument, mixed with an out-of-the-money name choice — an elegantly convoluted mechanism primed for vital dilution.

Then there’s Saylor’s latest post on X (previously Twitter):

Saylor has a penchant for making grandiose public statements. This newest cheeky piece of (self-)promotion is eye-catching not only for its bravado however for its potential regulatory implications. Legally, an organization’s prospectus — replete with rigorously lawyered danger elements — is supposed to do all of the speaking. Public corporations should not presupposed to hype their inventory choices, and Saylor has beforehand tread a really fantastic line by championing bitcoin relatively than Technique inventory itself. This newest submit, nevertheless, is tougher to clarify away. 

The general public plea is all of the extra hanging on condition that again in 2001, Saylor had consented to a everlasting injunction towards violating antifraud provisions of US securities regulation to settle Securities and Change Fee fees of accounting fraud. (With out admitting wrongdoing, Saylor additionally paid $8.6mn in disgorgements and penalties.) This newest submit seems to depend on a extra relaxed strategy to regulatory enforcement beneath the brand new Trump administration.

After all, if the worth of STRK declines, the plaintiffs’ bar will likely be wanting to pounce. However for now, Saylor appears content material to check boundaries.

Saylor’s brilliance doesn’t essentially lie in funding acumen however in his capacity to raise Technique’s share value — up over twentyfold since its pivot to bitcoin in August 2020. This has enabled insiders to money in massively, with senior executives unloading $568mn of stock in 2024, together with a flurry of sales by Saylor’s lieutenants close to the height in November. 

But it will be a mistake to conflate share value efficiency (and C-suite enrichment) with funding efficiency. Since its shift to bitcoin four-and-a-half years in the past, Technique’s cumulative return on its bitcoin holdings is a modest 20 per cent, whereas bitcoin has soared by round eight occasions.

Saylor’s timing has been removed from impeccable. Between November 10 2024 and February 23 2025, in keeping with Investor’s Business Daily, “Technique spent $21.2bn shopping for bitcoin at a median value of $96,458.” The corporate buys excessive, not low, as a result of it points extra shares and convertibles when bitcoin is hovering. This, in flip, fuels pleasure round Technique’s inventory and drives up its premium to NAV. This behavior of shopping for excessive is a function, not a bug, of Technique’s strategy.

As for Saylor’s funding recommendation, on January 20 2025, he tweeted, “Promote your kidney in case you should, however preserve the bitcoin.” Had one adopted that steerage, the outcome could be a mark-to-market drop of 20 per cent in funding worth and a realised lack of a essential organ.

Bitcoin could come again; an excised kidney won’t. The broader query stays whether or not Technique’s relentless fundraising to purchase bitcoin is a masterstroke or a reckless gamble. The $1,000 per share conversion value for STRK represents a wager on bitcoin’s continued ascent. If bitcoin soars, all stakeholders profit. If it stagnates or declines, the dilution from STRK and different fairness issuances will weigh closely on frequent shareholders, who’re already being pushed additional down the capital construction.

For now, Technique’s monetary wizardry is working. However the latest correction in its share value, the corporate’s capacity to craft novel securities and entice new patrons has helped maintain bitcoin’s rise — or, extra just lately, mood its fall — reinforcing a suggestions loop that retains the sport going.

However how lengthy can it final? Technique’s success is dependent upon two essential elements: the continued premium of its inventory to NAV and the continuing appreciation of bitcoin. If both falters, the complete edifice dangers collapse. Within the meantime, Saylor and his workforce will presumably proceed issuing fairness and equity-linked securities, accumulating bitcoin, exhorting the US government to buy 20 per cent of total bitcoin supply, and selling their own Strategy shares at periodic intervals.

Saylor’s X submit sums up Technique’s technique: strike the iron whereas it’s scorching. The query is whether or not administration’s hyper-opportunism belies the arrogance they so typically profess.

Additional studying:
— If bitcoin is the future, what explains MicroStrategy’s need for speed? (FTAV)
— MicroStrategy’s secret sauce is volatility, not bitcoin (FTAV)
— Examining MicroStrategy’s record-shattering $21bn ATM (FTAV)