MicroStrategy, a company founded by Michael Saylor, has become the focus of attention due to its strong investment strategy in Bitcoin. While investors appreciate the company's increase in value thanks to Bitcoin, the article highlights several points to consider when closely examining their numbers and financial strategies.
1. MicroStrategy has outperformed Bitcoin over the past 3-4 years:
• Profit: If an investment of 100 USD was made in MicroStrategy (MSTR) and Bitcoin (BTC) three years ago, the current amounts are 450 USD (MSTR) and 140 USD (BTC) respectively. From four years ago, the ratio is 2,700 USD (MSTR) compared to 550 USD (BTC).
• Main reason: The company leverages debt and equity markets to expand its Bitcoin holdings, causing MSTR's market capitalization to grow faster than the direct value of Bitcoin.
2. Growth through ‘multiple expansion’:
• Asset ratio: Although MicroStrategy's annual revenue is just under 600 million USD and has posted losses over the past 3 years, the company's value is almost entirely based on the amount of Bitcoin held.
• Currently, MSTR's market capitalization is 71.8 billion USD, which is 2.89 times the value of the Bitcoin they hold (24.8 billion USD). This figure has increased significantly from the ratio of 0.35 in October 2020, when investors doubted the company's ability to repay debt.
• Investors expect this ratio to continue expanding, leading to extremely optimistic predictions such as MSTR stock price reaching 2,300 USD, 5,000 USD, or even 35,000 USD in the future.
3. 'BTC Yield' and how MicroStrategy increases the amount of Bitcoin per share (BTC per share):
• MicroStrategy uses low-cost debt and share dilution to increase its Bitcoin holdings. This helps each MSTR share increase its exposure to Bitcoin each year:
• 1.8% in 2022
• 7.3% in 2023
• 16% in the first 3 quarters of 2024.
4. Important note from the 'fine print' in the financial report:
• The figures do not fully reflect: The BTC Yield figures are calculated based on the existing shares at the time of the report, excluding any debts or options that may dilute in the future.
• MicroStrategy acknowledges that the figures regarding $BTC Yield may be exaggerated or minimized if debts or options are exercised in the future.
5. Risks and challenges in the future:
• Large debts and dilution risks: Most of the company's debt has a term of 4 years, accompanied by convertible stock rights or significant financial events. When these debts mature, the company may have to:
• Sell additional shares (diluting shareholders).
• Sell Bitcoin to pay off debts.
• Limited confidence and data: Although MicroStrategy has performed well over the past 3 years, the data remains limited, especially as debt obligations extend for at least 4 years.
Conclusion:
MicroStrategy is a unique company in the cryptocurrency industry, with a strategy of accumulating Bitcoin through debt and equity. However, investors need to carefully consider the financial metrics and potential risks related to debt and future share dilution. The company's success depends not only on the price of Bitcoin but also on the wise financial management of Michael Saylor and the leadership team.
