Saylor’s Strategy: buy higher, pump harder

{"text":[[{"start":9.14,"text":"Few tales in corporate finance are as audacious, bewildering, or downright entertaining as that of the company formerly known as MicroStrategy. "},{"start":17.057000000000002,"text":"This once-humdrum business-software vendor has transformed into a high-octane bitcoin investment vehicle under the flamboyant leadership of Michael Saylor, its co-founder and executive chair. "},{"start":26.762,"text":"The company, now called Strategy, holds nearly 500,000 bitcoins, equivalent to 2.38 per cent of the total supply, acquired at an average price of around $66,000. "}],[{"start":38.55,"text":"What captivates markets isn’t just the scale of Strategy’s bitcoin accumulation but the relentless financial engineering underpinning it. "},{"start":45.416999999999994,"text":"The latest manoeuvre is the announcement last week of a $21bn “at-the-market” (ATM) offering of STRK, a convertible perpetual preferred stock currently yielding more than 9 per cent (payable at the company’s discretion in cash or common stock). "},{"start":59.233999999999995,"text":"The proceeds will be used, predictably, to buy more bitcoin. "}],[{"start":64.02,"text":"At today’s bitcoin price of around $80,000, Strategy could amass another 262,500 bitcoins, bringing its total holdings to 3.6 per cent of all bitcoin in existence. "},{"start":75.737,"text":"According to JPMorgan research, “MicroStrategy’s bitcoin purchases alone accounted for 28 per cent of last year’s record capital inflow into crypto markets. ”"},{"start":84.74199999999999,"text":"It’s no exaggeration to say that Strategy is not merely a major player but the market itself — a blue whale consuming all the available krill in the bitcoin ocean. "}],[{"start":94.08,"text":"This latest financial feat follows hot on the heels of a $42bn ATM issuance of common stock and debt announced on Halloween 2024 — a fitting date for a company that thrives on financial trick-or-treating. "},{"start":106.02199999999999,"text":"At the time, Strategy’s shares closed at $244.50. "},{"start":110.964,"text":"The election of Donald Trump sent the stock soaring, reaching an intraday peak of $543 on 20th November, but it has since fallen to half that level. "},{"start":119.757,"text":"The rollercoaster ride has been white-knuckle stuff. "}],[{"start":null,"text":"

"}],[{"start":123.50999999999999,"text":"At the heart of this bitcoin bonanza is an anomaly few investment firms can replicate: Strategy’s stock trades at a persistent premium to its net asset value. "},{"start":132.027,"text":"Most investment trusts struggle to avoid trading at a discount, often inviting shareholder activism and pressure to buy back shares. "},{"start":138.91899999999998,"text":"Not so for Strategy, whose stock has commanded a premium as high as 3.8 times NAV, currently standing at around 1.7 times. "},{"start":146.92399999999998,"text":"This valuation anomaly has enabled the company to issue equity and equity-linked instruments aggressively, using the proceeds to acquire yet more bitcoin. "},{"start":154.96699999999998,"text":"It is a self-reinforcing cycle that has cemented Strategy’s status as a Wall Street obsession (and massive investment banking fee-payer) and a bitcoin juggernaut. "}],[{"start":164.60999999999999,"text":"Yet, therein lies the rub. "},{"start":167.027,"text":"Strategy’s legacy software business does not generate cash. "},{"start":170.719,"text":"Servicing the high dividend on STRK will require further financial engineering, most likely through additional equity issuance. "},{"start":177.76199999999997,"text":"This will inevitably lead to dilution for existing common stockholders. "},{"start":181.754,"text":"STRK, in effect, functions as a perpetual payment-in-kind instrument, combined with an out-of-the-money call option — an elegantly convoluted mechanism primed for significant dilution. "}],[{"start":193.07999999999998,"text":"Then there’s Saylor’s recent post on X (formerly Twitter): "}],[{"start":null,"text":""}],[{"start":196.92999999999998,"text":"Saylor has a penchant for making grandiose public statements. "},{"start":200.522,"text":"This latest cheeky piece of (self-)promotion is eye-catching not just for its bravado but for its potential regulatory implications. "},{"start":207.70199999999997,"text":"Legally, a company’s prospectus — replete with carefully lawyered risk factors — is meant to do all the talking. "},{"start":214.03199999999998,"text":"Public companies are not supposed to hype their stock offerings, and Saylor has previously tread a very fine line by championing bitcoin rather than Strategy stock itself. "},{"start":222.74899999999997,"text":"This latest post, however, is harder to explain away. "}],[{"start":227.51,"text":"The public plea is all the more striking given that back in 2001, Saylor had consented to a permanent injunction against violating antifraud provisions of US securities law to settle Securities and Exchange Commission charges of accounting fraud. "},{"start":240.36399999999998,"text":"Without admitting wrongdoing, Saylor also paid $8.6mn in disgorgements and penalties.) This latest post appears to count on a more relaxed approach to regulatory enforcement under the new Trump administration. "}],[{"start":252.95999999999998,"text":"Of course, if the price of STRK declines, the plaintiffs’ bar will be eager to pounce. "},{"start":258.402,"text":"But for now, Saylor seems content to test boundaries. "}],[{"start":262.4,"text":"Saylor’s brilliance does not necessarily lie in investment acumen but in his ability to elevate Strategy’s share price — up over twentyfold since its pivot to bitcoin in August 2020. "},{"start":272.267,"text":"This has enabled insiders to cash in massively, with senior executives unloading $568mn of stock in 2024, including a flurry of sales by Saylor’s lieutenants near the peak in November. "}],[{"start":284.39,"text":"Yet it would be a mistake to conflate share price performance (and C-suite enrichment) with investment performance. "},{"start":290.68199999999996,"text":"Since its shift to bitcoin four-and-a-half years ago, Strategy’s cumulative return on its bitcoin holdings is a modest 20 per cent, while bitcoin has soared by around eight times. "}],[{"start":301,"text":"Saylor’s timing has been far from impeccable. "},{"start":303.867,"text":"Between November 10 2024 and February 23 2025, according to Investor’s Business Daily, “Strategy spent $21.2bn buying bitcoin at an average price of $96,458. ”"},{"start":317.309,"text":"The company buys high, not low, because it issues more shares and convertibles when bitcoin is soaring. "},{"start":323.064,"text":"This, in turn, fuels excitement around Strategy’s stock and drives up its premium to NAV. "},{"start":328.60699999999997,"text":"This habit of buying high is a feature, not a bug, of Strategy’s approach. "}],[{"start":334.06,"text":"As for Saylor’s investment advice, on January 20 February 28 2025, he tweeted, “Sell your kidney if you must, but keep the bitcoin. ”"},{"start":343.027,"text":"Had one followed that guidance, the consequence would be a mark-to-market drop of 20 per cent in investment value and a realised loss of a critical organ. "}],[{"start":null,"text":""}],[{"start":351.35,"text":"Bitcoin may come back; an excised kidney will not. "},{"start":354.79200000000003,"text":"The broader question remains whether Strategy’s relentless fundraising to buy bitcoin is a masterstroke or a reckless gamble. "},{"start":361.14700000000005,"text":"The $1,000 per share conversion price for STRK represents a wager on bitcoin’s continued ascent. "},{"start":367.41400000000004,"text":"If bitcoin soars, all stakeholders benefit. "},{"start":370.54400000000004,"text":"If it stagnates or declines, the dilution from STRK and other equity issuances will weigh heavily on common shareholders, who are already being pushed further down the capital structure. "}],[{"start":380.88,"text":"For now, Strategy’s financial wizardry is working. "},{"start":384.43399999999997,"text":"Notwithstanding the recent correction in its share price, the company’s ability to craft novel securities and attract new buyers has helped sustain bitcoin’s rise — or, more recently, temper its fall — reinforcing a feedback loop that keeps the game going. "}],[{"start":398.55,"text":"But how long can it last? "},{"start":400.404,"text":"Strategy’s success depends on two critical factors: the continued premium of its stock to NAV and the ongoing appreciation of bitcoin. "},{"start":407.797,"text":"If either falters, the entire edifice risks collapse. "},{"start":411.139,"text":"In the meantime, Saylor and his team will presumably continue issuing equity 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. "}],[{"start":425.72,"text":"Saylor’s X post sums up Strategy’s strategy: strike the iron while it’s hot. "},{"start":430.574,"text":"The question is whether management’s hyper-opportunism belies the confidence they so often profess. "}],[{"start":436.70000000000005,"text":"Further reading: "}],[{"start":439.02000000000004,"text":"If bitcoin is the future, what explains MicroStrategy’s need for speed? "},{"start":443.53700000000003,"text":"FTAV "}],[{"start":446.06000000000006,"text":"MicroStrategy’s secret sauce is volatility, not bitcoin (FTAV "}],[{"start":452.31000000000006,"text":"Examining MicroStrategy’s record-shattering $21bn ATM (FTAV "}],[{"start":458.3400000000001,"text":"Correction: an earlier version of the post had the date wrong for Saylor’s “kidney” tweet. "}],[{"start":462.86000000000007,"text":""}]],"url":"https://d33mkcasurz97s.cloudfront.net/album/197164-1742090294.mp3"}