microstrategy (MSTR 0.39%) is doubling your Bitcoin (BTC 1.36%) investment again. This time, the business intelligence firm is asking shareholders to foot the bill.
What is MicroStrategy doing?
MicroStrategy disclosed a public market offering of shares in a pair of regulatory filings published after the closing bell last Friday. The company wants to raise up to $500 million from this share sale, which could be done in a single batch or in a series of transactions over time. Realistically, MicroStrategy and its banking partners want to push this process through quickly, perhaps as early as Monday, September 12. Future presentations will tell that story.
The resulting $500 million cash inflow (minus a 2% fee for bankers) is technically intended for “general corporate purposes,” including but not limited to buying more Bitcoins. However, you should be aware that MicroStrategy has recently been raising cash in many ways for the specific purpose of buying Bitcoin. There is no reason to believe that this sale of shares will serve any other purpose.
What does this move mean for MicroStrategy investors?
This stock sale is a big deal.
Issuing enough shares to raise $500 million on the open stock market is no small feat when the total market value of the shares was $2.96 billion when these documents were filed. The share count may rise by about 17%, based on Friday’s share 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 portions.
Large stock sales tend to influence stock prices as investors adjust to incoming stock dilution. However, MicroStrategy stock is trading just 2% lower at the time of writing.
The scale of this investment
The modest share price decline suggests that investors see great value in MicroStrategy’s Bitcoin buying spree. That’s no surprise. Share prices made similar moves when the company raised $205 million from a term loan in March 2022. A $500 million debt offering in June 2021 was met with a five-day 25% rise in the MicroStrategy stock chart. In both cases, the profits went directly to buying more Bitcoin.
Thus, MicroStrategy investors seem to agree with the company’s focus on getting as much Bitcoin as it can manage. 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 contained 129,677 Bitcoins on September 8, according to share sale filings. That’s worth roughly $3.78 billion at current Bitcoin prices, balanced with $2.4 billion in long-term debt. Actual cash reserves hover around the $70 million mark as the company continues to invest every spare penny in more Bitcoin. The proposed share sales could generate approximately 22,500 Bitcoins at these prices, which would increase digital asset storage by 17%.
How does MicroStrategy’s Bitcoin philosophy work?
Buying Bitcoin is a stated corporate strategy, along with 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 should also gain in value as the cryptocurrency market matures.
“The current wave of cryptocurrency rationalization, regulation and innovation is healthy for this industry in 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 these trends.”
If Bitcoin ends up gaining value in the long term, MicroStrategy will see a strong return on these digital investments. 2022 has been a painful year for crypto investors, unless you are an active buyer and want to get more Bitcoin at low prices. If Michael Saylor’s Bitcoin strategy works as planned, 2022 will go down as a year of wealth creation. If not, it will go down in history as a costly mistake.
Therefore, you can see MicroStrategy as a direct investment in Bitcoin, magnified by the company’s ability to leverage many different financial resources to increase its Bitcoin holdings. This time, it’s a stock sale, and shareholders are giving that idea a big thumbs up.