MicroStrategy does it again! It has announced this week companies new plan in its bitcoin strategy. And it is big. They obviously want more bitcoin. This time way more than what they already have. They are targeting to raise total of $42 billion dollars within next three years, and use it all to buy more bitcoin. The plan is called 21 + 21. The goal is the raise $21 billion dollars using at the market equity offering, and $21 billion dollars more using fixed-income securities. Amazing!
Now these numbers: 42 and 21 are irrelevant and used to attract more attention and make the plan sound more interesting. If you are familiar with The Hitchhiker's Guide To The Galaxy you may see why Michael Saylor chose number 42. Because in this story the most important question of What is the ultimate question of life, the universe, and everything is answered by supercomputer as number 42. For Michael Saylor another significance of 42 it is divisible by 21, which in reference to importance of this number in bitcoin. Because there will only be 21 million bitcoins mined. In other words, the target amount to raise could have been $25 billion, $50 billion, or even $100 billion. We may even see numbers higher than $42 billion in the future. For now it is already very ambitious goal for MicroStrategy.
In the investors' conference call this week MicroStrategy went into details about their ambitious plans for bitcoin strategy. They explained why they chose these numbers as well. MicroStrategy is now a Bitcoin Treasury Company. We already knew that. But by this move MicroStrategy setting itself yet another risky and challenging journey. The company was already all in with bitcoin. This move is definitely a huge step higher than they even considered before. The original bitcoin plan worked very well, and it may have been the most brilliant financial and business decision in the WallStreet in this decade. Now they found themselves in a really good position having accumulated 1.2% of total bitcoin. They didn't have to do take any more risky actions, this would keep the company relevant long into the future. They have come to a conclusion that what have worked so far, can be repeated in much higher scales. Conviction Michael Saylor and MicroStrategy have about bitcoin and its future is the most admirable and inspiring.
So what is the plan? The plan is buy more bitcoin with the money they do not have, yet. The plan is to obtain $42 billion dollars worth of bitcoin in the next three years regardless the price of bitcoin. This is great news for bitcoin investors. This means if this plan works there is already $42 billion guaranteed cash that will be pouring into the bitcoin network. So demand side of bitcoin market will be in a good shape. If we add all other potential buyers of course numbers will be a lot higher. But knowing there is a solid plan we can trust is great for the market sentiment.
Is it great for the MicroStrategy investors though? Critics will argue that Saylor and the company are diluting the existing shareholders assets by creating and selling more stocks. Saylor actually answered this question and I too came to the same conclusion before even I heard Saylor's explanation. The answer for the criticism of dilution is that, the value of assets shareholders hold doesn't actually lose value. Because MicroStrategy is not just selling the stocks created out of thin air. They are using this money to buy more bitcoin and adding to their treasury balance sheet. In other words they are turning fiat into bitcoin. So the value is not disappearing anywhere. If anything the value is retained and with price appreciation of bitcoin the value grows even higher. Just like it has done since MicroStrategy started this journey. $MSTR price performance has beaten all other major asset classes, even bitcoin itself. $MSTR appreciated almost 2 times more than bitcoin did. That is impressive.
Considering that those who are invested in MicroStrategy are most like have done so because of the company's bitcoin strategy, I think they would want to see the continuation of the same strategy. Those who were interested in MicroStrategy as a software company only have probably moved on to other things. Even if there are still those who would like to see MicroStrategy focus on software business instead, they can sell and consider thousands of other investment options who do what they would prefer a software company do. They would still leave their positions with a lot of profits made already. Saylor answered this question the best. He said he have actually heard investors asking him if MicroStrategy would stop buying, and that they would prefer to see the company continue buying and continue accumulating more bitcoin.
By now MicroStrategy's core business is irrelevant for investors. The stock's price relies mainly on companies bitcoin holding and it seems what is what the majority of investors want. Considering this, it makes perfect sense that MicroStrategy would up its game and continue improving and growing its strategy. It is not only stocks they will be creating and selling. The other half of the strategy is selling bonds. Why not? They have done this successfully already. Saylor mentioned that all the bonds they have sold so far were in big profits. Some made 45% returns, some gained 90% and others even higher. These options MicroStrategy have created for investors have worked well for the company itself and the investors. Moreover Saylor added that derivative and option markets for the companies stock is among highly demanded and traded ones, and definitely among top ten. The reason for this is because the company's bitcoin strategy added volatility to its stock and traded seem to prefer volatile assets.
It all started four years when Saylor as a CEO of MicroStrategy had make a crucial but risky decision of converting half a billion dollars of cash in company's treasury into bitcoin to preserve company's wealth and property. After doing proper research and coming to a conclusion that bitcoin is the best asset, he felt it was his fiduciary duty to invent and adopt a bitcoin strategy. For this investors should thank him, and players in the financial markets and business should take notes. Not only Saylor was very strategic in his decision making and actions, he was very transparent and wouldn't mind sharing the blueprint with anybody who is interested. I am sure he influenced many, but how may is yet to be seen. Well played, Michael!
I believe this next step is risky. I do believe bitcoin is the best asset as well. But I am not courageous enough to take such bold moves. If it works, and I have no reason to believe it wouldn't, wow! Many companies and sovereign funds will be missing out on more bitcoins. If they don't take actions now, Saylor will continue hoarding them. And he has no intentions of selling them. Ever!
Not only Saylor's strategy worked well for the company and its investors so far, but also Saylor was right about many predictions he had made in the past. Among them were the adoption of new FASB accounting for companies that hold bitcoin. This accounting makes it possible for companies to represent the true value of their holding based on market price changes. Without this it would be challenging for companies to consider bitcoin in their balance sheets. MicroStrategy will be adopting this accounting in early 2025 as well. Saylor also was right when said Gensler and SEC would be pro-bitcoin, accept is a commodity, and also approve bitcoin stop ETFs. This all happened as well. Saylor was also right about governments making peace with the existence of bitcoin and not creating obstacles. Yes, SEC and government have not been super friendly to crypto industry. But when it comes to bitcoin they couldn't say or do much. Even president Donald Trump, who called bitcoin a scam in the past is now a bitcoiner. Saylor also have said that financial giants would embrace bitcoin as well. Look at Larry Fink and BlackRock. They are competing to show who is more obsessed with bitcoin. Amazing!
While now MicroStrategy is officially a Bitcoin Treasury Company, I don't think their core software business is neglected either. They have an impressive business with a decent cash flow. They make tens of millions in revenue with 70% margin profits if not more. Four years ago this business used to bring in $50 million cash annually. Now it is even higher, although it seems their revenue dropped by 10% this year. Impressive business, and impressive profits. Saylor have said in the past there was no need to grow the business any further. It was already efficient enough and nothing else would increase the revenue. Having stable business operations is great for any company. If anything bitcoin strategy brought more attention to the company and its business. Before bitcoin strategy not may new what MicroStrategy was. Now it is a global brand. Not just any brand, but a brand of success that capitalizes on decentralized standards.
In the past Saylor had no interest in getting involved in any kind of developments in bitcoin. This has also changed. Now MicroStrategy is open to build applications that can benefit from bitcoin. They have already been working on such projects. Utilizing their company resources they are in a good position to participate in various developments and being part of the innovation as well. MicroStrategy is not stopping here. They still have much more to offer.