MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’

[figmentofmyass]

Yeah, value investor my ass--at least Miller isn't being one in this case:



Note the P/E of 5048.  Usually, value investors don't chase stocks with P/E's as high as that.  Warren Buffet probably hasn't purchased a stock with a P/E higher than 18.  So yeah, MSTR is massively overvalued--even more so than the rest of the stock market right now.

in all fairness, their assets (bitcoin holdings) represent intrinsic value, and that is being reflected in the share price---just like it would be in a bitcoin ETF.

those holdings aren't reflected in earnings, obviously. any public company that invests in bitcoin is going to have the same skewed P/E dynamics. if bitcoin treasuries become commonplace, we're gonna have to rethink the usefulness of P/E.

[1714995514]

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[1714995514]

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[acquafredda]

Yeah, value investor my ass--at least Miller isn't being one in this case:



Note the P/E of 5048.  Usually, value investors don't chase stocks with P/E's as high as that.  Warren Buffet probably hasn't purchased a stock with a P/E higher than 18.  So yeah, MSTR is massively overvalued--even more so than the rest of the stock market right now.

in all fairness, their assets (bitcoin holdings) represent intrinsic value, and that is being reflected in the share price---just like it would be in a bitcoin ETF.

those holdings aren't reflected in earnings, obviously. any public company that invests in bitcoin is going to have the same skewed P/E dynamics. if bitcoin treasuries become commonplace, we're gonna have to rethink the usefulness of P/E.

Even if you buy Italian bonds you may be happy knowing that Italy is one of the top gold owners in the world: that does not mean that you have some guarantees that Italy is economically and financially sound because their ass is backed by tonnes of gold. 

[exstasie]

Even if you buy Italian bonds you may be happy knowing that Italy is one of the top gold owners in the world: that does not mean that you have some guarantees that Italy is economically and financially sound because their ass is backed by tonnes of gold.  

Doesn't mean much when their debt vs. GDP is ranked 3rd worst in the world. There is no comparing Microstrategy's financials with Italy's.

Microstrategy had a healthy balance sheet before they started buying BTC. I'm looking forward to seeing their annual and Q1 reports to see how much it's improved since then.

[thecodebear]

Yeah, value investor my ass--at least Miller isn't being one in this case:



Note the P/E of 5048.  Usually, value investors don't chase stocks with P/E's as high as that.  Warren Buffet probably hasn't purchased a stock with a P/E higher than 18.  So yeah, MSTR is massively overvalued--even more so than the rest of the stock market right now.

in all fairness, their assets (bitcoin holdings) represent intrinsic value, and that is being reflected in the share price---just like it would be in a bitcoin ETF.

those holdings aren't reflected in earnings, obviously. any public company that invests in bitcoin is going to have the same skewed P/E dynamics. if bitcoin treasuries become commonplace, we're gonna have to rethink the usefulness of P/E.

Yeah this is exactly right.

The money Microstrategy is and will be holding thanks to their move into Bitcoin is going to be massively more than just what you would see based off earnings, so P/E doesn't tell the whole story obviously. The company is worth far more than earnings suggest because they have billions of $ worth of Bitcoin.

[acquafredda]

Even if you buy Italian bonds you may be happy knowing that Italy is one of the top gold owners in the world: that does not mean that you have some guarantees that Italy is economically and financially sound because their ass is backed by tonnes of gold.  

Doesn't mean much when their debt vs. GDP is ranked 3rd worst in the world. There is no comparing Microstrategy's financials with Italy's.

Microstrategy had a healthy balance sheet before they started buying BTC. I'm looking forward to seeing their annual and Q1 reports to see how much it's improved since then.

Fair enough. 
I was only trying to find an analogy and it looks like I failed miserably 
The only point which can be retained is that, at least, there is something valuable that can be sold for a profit even if things go very bad. But, as you said, I would not compare the two again.

[jaysabi]

A couple of very interesting tweet from Micheal Saylor:

Michael Saylor (@michael_saylor) Tweeted:

MicroStrategy is not an investment company (IC) per the 1940 Investment Co. Act.  An IC is a co. that invests ≥ 40% of assets (less cash & govt securities) in “securities”.  Per the SEC, #BTC isn’t a security.   Ergo, holding BTC doesn’t cause MicroStrategy to become an IC.

https://twitter.com/michael_saylor/status/1337556620839165952?s=20

MicroStrategy is not an ETF/ETP.  ETFs & ETPs exist to invest in stocks, bonds or commodities – they’re investment companies per ’40 Act. Like Apple & Microsoft, MicroStrategy is an operating company traded on a stock exchange. We just happen to hold BTC in our treasury reserves.

https://twitter.com/michael_saylor/status/1337556890742624259?s=20

This is a weird statement in my opinion. Who is the recipient of this message? The public? The regulators?

Oh, speaking of regulators: they are a weird bunch of people.

Regulators be like...

https://twitter.com/gaborgurbacs/status/1336096995287715840?s=20

I think MicroStrategy is walking on a fine line. I don’t know if the first action will be taken by regulators of the shareholders, even assuming they can do anything with the 33% of voting powers.

Anyway it will be interesting when BTC moons and the total BTC investment will be more than 40% of total assets.

On this last point, Saylor is saying that because Bitcoin isn't a "security," MicroStrategy can never be an "investment company" no matter if it breaches 40% threshold or not. He's making an argument on the technical definitions under the Investment Company Act. I agree with him here. Security is a specific definition and the Supreme Court has even ruled on the test for what is and isn't a security, and Bitcoin doesn't fit the definition.

[jaysabi]

For sure I wouldn't do that to brag about it, being a "value investor".

Yeah, value investor my ass--at least Miller isn't being one in this case:



Note the P/E of 5048.  Usually, value investors don't chase stocks with P/E's as high as that.  Warren Buffet probably hasn't purchased a stock with a P/E higher than 18.  So yeah, MSTR is massively overvalued--even more so than the rest of the stock market right now.

Also, it's no wonder Miller didn't buy MSTR stock outright.  There aren't that many shares outstanding relative to other companies.

Miller bought MSTR debt, not the stock.  PE ratio is not a metric relevant to valuing a bond investment.  Interesting what he said:  "So, when MicroStrategy issued the bond at par, in our assessment there was very little downside and an almost-free call option on Bitcoin."  It's about bitcoin exposure.  Also, PE ratio doesn't take into account unrealized gains, and the appreciation of the bitcoin holdings is what's driving MSTR's performance right now, not the value of its legacy business which is where the PE ratio comes from.  I'm sure if you measure price to book value you get a much more reasonable valuation growth metric than by using PE, as this metric would take into account the unrealized gains, not the profit of the legacy business.

[The Sceptical Chymist]

PE ratio is not a metric relevant to valuing a bond investment. 

Yes, I understand that P/E is used for stock evaluation (and I'll admit that when I wrote that post I'd momentarily forgotten that he hadn't bought the stock)--but wouldn't value investors still shy away from even buying debt from companies with a metric that high?  It still means that essentially the stock is expensive--but I'll also admit that I don't understand bond trading all that well, or at least how value investors know which bonds are attractive.

[fillippone]

PE ratio is not a metric relevant to valuing a bond investment. 

Yes, I understand that P/E is used for stock evaluation (and I'll admit that when I wrote that post I'd momentarily forgotten that he hadn't bought the stock)--but wouldn't value investors still shy away from even buying debt from companies with a metric that high?  It still means that essentially the stock is expensive--but I'll also admit that I don't understand bond trading all that well, or at least how value investors know which bonds are attractive.

Well, of course the P/E is something that affects primarily the stock investment, and on a lesser extent the bond-holder. Take the GameStop drama: now the P/E dramatically surged to nonsense valuation. Has the stock investment outcome changed? Yes, now investing in the stock is far more dangerous.
Has the scenario changed for a bond holder? Well, not much, as those P/E valuation are not impacting the creditworthiness of the firm: they were on the brink of collapse before, and probably so are now in this pump ( something different could be said for firms with astonishing P/E for completely different reasons, like TSLA, but I tone want to swerve OT too much).

In this specific case, please remember we are talking about a convertible bond, hence something that can be, under some determined circumstances, redeemed in stocks. Hence, valuing those hybrid instruments, P/E must be taken into account.

[fillippone]

They did it again.
They bought their 6th tranche of bitcoin.
According to Micheal Saylor:


https://twitter.com/michael_saylor/status/1356600103193182210?s=21

Well, this is found also on my spreadsheets



With this purchase they are towards, but below, the 40% share of the firm being pure BTC:



40% is the threshold of the total assets in financial instruments that require a company to register as a financial company.

[fillippone]

Microstrategy hosted in the past two days a very interesting conference : Bitcoin for Corporations.

Now every session is available for rewatch on their website,
Bitcoin for corporations

Also available to download their "Bitcoin Playbook".

Bitcoin Initiative – Project Roadmap

This is a long, but really interesting read:

As a market leader, MicroStrategy is transforming how companies now approach their treasury reserve strategy. Download this playbook for a high-level overview of the key phases and steps MicroStrategy took in its initiative to adopt bitcoin as its primary treasury reserve asset.

---

MicroStrategy Bitcoin Initiative - Open Source Documents
These documents are being provided to serve as a resource to help as you navigate a corporate bitcoin strategy. As indicated in the documents, portions of the documents have been redacted due to their confidential and/or proprietary nature.

To properly download this playbook you need a corporate email, otherwise you can watch presentation videos that give a pretty good idea of the contents.

[Upgrade00]

Microstrategy recently released their annual 10-K report and unsurprisingly Bitcoin appeared in it a couple of times. They shared their acquisition strategy, risks, corporate strategies, Bitcoin overview etc. Link to download the full PDF - https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/financial-document-archive/Form-10-K_01-12-2021.pdf

(Tl;dr) Overview:

We view our bitcoin holdings as long-term holdings and we do not plan to engage in regular trading of bitcoin or to
hedge or otherwise enter into derivative contracts with respect to our bitcoin holdings, though we may sell bitcoins in
future periods as needed to generate cash for treasury management and other general corporate purposes. We have not
targeted any specific amount of bitcoin holdings, and we will continue to monitor market conditions in determining
whether to conduct debt or equity financings to purchase additional bitcoin.

As of February 8, 2021, we held approximately 71,079 bitcoin that were acquired at an aggregate purchase price of
$1.145 billion and an average purchase price of approximately $16,109 per bitcoin, inclusive of fees and expenses.

With a purchase price of $16,109, microstrategy is up about 300% in their Bitcoin holdings at current exchange rate. That figure is however insignificant as the company does not plan to sell or trade, but instead hold for the long term, while acquiring more if possible.
Significantly, Bitcoin was included in their business overview as one of their two main strategies:

Business Overview
MicroStrategy pursues two corporate strategies in the operation of its business. One strategy is to grow our enterprise
analytics software business and the other strategy is to acquire and hold bitcoin.

...

We believe that our bitcoin strategy is complementary to our analytics software and services business, as we believe
that our bitcoin and related activities in support of the bitcoin network enhance awareness of our brand and can provide
opportunities to secure new customers for our analytics offerings. We are also exploring opportunities to apply bitcoin
related technologies such as blockchain analytics into our software offerings.

They also shared the risks associated with holding Bitcoin:

• Fluctuations in the price of bitcoin may significantly influence the market price of our class A common stock.
• Our historical financial statements do not reflect the potential variability in earnings that we may experience in the
future relating to bitcoin holdings.
• Changes in securities regulation may adversely impact the market price of our class A common stock.
• Our bitcoin holdings could subject us to regulatory scrutiny.
• Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading
venues, they may experience fraud, security failures or operational problems, which may adversely affect the value
of our bitcoin.
• The price of bitcoin may be influenced by regulatory, commercial, and technical factors that are highly uncertain.
• The concentration of our bitcoin holdings enhances the risks inherent in our bitcoin acquisition strategy.
• Our bitcoin holdings are less liquid than our existing cash and cash equivalents and may not be able to serve as a
source of liquidity for us to the same extent as cash and cash equivalents.
• If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties
obtain access to our bitcoin, we may lose some or all of our bitcoin and our financial condition and results of
operations could be materially adversely affected.
• The loss or destruction of a private key required to access our bitcoin may be irreversible. If we are unable to access
our private keys or if we experience a cyberattack or other data loss relating to our bitcoin, our financial condition
and results of operations could be materially adversely affected.
• Regulatory change reclassifying bitcoin as a security could lead to our classification as an “investment company”
under the Investment Company Act of 1940 and could adversely affect the market price of bitcoin and the market
price of our class A common stock.

[fillippone]

Microstrategy is at it again: issuing debt to buy bitcoin:


MicroStrategy Announces Proposed Private Offering of $600 Million of Convertible Senior Notes

TYSONS CORNER, Va., February 16, 2021 — MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced that it intends to offer, subject to market conditions and other factors, $600 million aggregate principal amount of convertible senior notes due 2027 (the “notes”) in a private offering to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

Please note this is a private sale. I guess it is an aftermath of their bitcoin conference a few weeks back. I bet a lot of treasurer cannot get long bitcoin for a variety of reasons, hence here Micheal Saylor is offering them a vehicle (Microstrategy itself) to gain exposure to Bitcoin.

[Upgrade00]

Microstrategy is at it again: issuing debt to buy bitcoin:

At this point, it's a question of which public company would be next to include Bitcoin to it's balance sheet. Michael Saylor through microstrategy has set a glowing example and the list which now includes Tesla would likely keep growing.

It however appears that there was a dip in the price within the time the news was announced publicly and the stock price closed at a negative value, significant?

https://finance.yahoo.com/quote/MSTR

[fillippone]

Bond priced:

MicroStrategy Announces Pricing of Offering of Convertible Senior Notes

TYSONS CORNER, Va., February 17, 2021 — MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced the pricing of its offering of $900 million aggregate principal amount of 0% convertible senior notes due 2027 (the “notes”). The notes will be sold in a private offering to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). MicroStrategy also granted to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $150 million aggregate principal amount of the notes. The offering is expected to close on February 19, 2021, subject to satisfaction of customary closing conditions.

A few thoughts

• 0%. Coupon rate.You are lending money to MicroStrategy for free. Negative interest rates are here, but surely not for MicroStrategy. First issue was 0.75%
• 900 billion + 150 optional. They announced 600 BLN. First issue was  650 BLN.
• 13 days selling window. This means sale ends on March 5th. But I expect it to close earlier due to massive demand

All this signal an extreme demand of CFO’s getting long of bitcoin. Apparently many of them cannot get long BTC directly, so will use this investment vehicle setup by Saylor.
Everybody wins!

[fillippone]

A very interesting thread to recap the situation:

1/ MicroStrategy has announced a $600M convertible bond raise in order to buy even more Bitcoin

How does this compare to their previous offering?
And is this their last?
2/ First, a convert bond starts as a bond then "converts" to equity. The company pays lower interest rates b/c of this potential conversion. Aka the company will pay for it later w/ equity dilution. A company will choose this route if they have bad credit or expect high growth.

3/ In Dec 2020, MSTR announced their first convert bond offering for the explicit purpose of buying Bitcoin. Citi immediately downgraded MSTR to a “sell” recommendation. The market had a much more bullish take

4/ Investor appetite was so strong that MSTR increa
sed the offering from $400M to $550M w/ the option for another $100M. All of this was filled for a total $650M offering

 5/ MSTR also priced their bonds insanely low. Interest was 0.75% / yr. Payments were ~$4M /yr for a company w/ an operating income of ~$40M. That's 10x coverage. 2x is considered strong

6/ Saylor went even further than this aggressive pricing by giving themselves the option to settle the bond in shares or pay out in cash. The bond was struck for $398 per share while the stock was at $289. A 35% premium to investors

7/ MSTR has now announced their new offering of $600M converts w/ a $90M increase. Pricing is still TBD but it isn’t hard to imagine it will be in line w/ the last offering. Will we even see another upsize in the offering given Bitcoin’s continuous rising price?

8/ Why do investors remain excited? MSTR has no debt, apart from the $650M note. They can handle more given a) their operating income and b) their balance sheet has more than doubled from their Bitcoin holding - from $1.1B to $3.4B
9/ MSTR owns more BTC than any other operating company, and it gives it a scarcity value above the value of the core business and BTC holdings.

10/ To many institutional investors, it is *the* company you want to invest in for an “almost free call option on Bitcoin”

MicroStrategy and Bitcoin: the Mother of All Fat Tails? - Miller Value Partners
Bill Miller IV on the latest opportunity in a procyclically positioned income strategy.
https://millervalue.com/4q20-income-strategy-letter/

11/ Tesla’s addition of Bitcoin to their balance sheet is helping normalize corps holding Bitcoin as a reserve, but MSTR is the only public company actively taking out debt to acquire more Bitcoin

 
12/ And, per their “Bitcoin Acquisition Strategy” in their 10K, they have no plans to stop. For the foreseeable future, they will use excess cash flows and debt to acquire more and more Bitcoin

13/ TL;DR: MSTR remains the only public company on the market continuing to take out debt to acquire more Bitcoin. Their pricing of these bonds and rising stock price have shown their success in this strategy. They won’t be stopping anytime

https://threadreaderapp.com/thread/1361779890731778059.html

Nothing too difficult, a few points were also already touched in my thread, but anyway, it's a good recap!

[fillippone]

It's nice to see how the Bitcoin investment changed the outlook on MSTR.
First a recap on how Microstrategy built up their BTC investment, a graph is worth thousands of words:

	MSRT BTC Buys and holdings

You can have a recap table on my Microstrategy Spreadsheet, anyway, it is here:

	MSRT Buys

We see that MSTR is now more than 40% BTC. This percentage is going to be greater in a few days when they will have completed their announced bond sale.

	BTC per share in MSRT

Exactly, because now Microstrategy is the "common people" Bitcoin ETF, as many investors cannot hold BTC directly. Some institutional then go to Grayscale, others purchase the convertible bond, others simply buy the share.
This resulted in a massive bid in the share.
Looking at the graph:
 

	MSRT and BTC percentual appreciation since July, 1st. MSRT Went bonkers

Just remember we just saw MSRT is a 40% BTC company, so performance should lag BTC, not be even greater than BTC. Instead when BT rallied a lot of investors scrambled buying MSRT ad an unsustainable premium over the fair valuation. Just remember MSRT is not a financial company, so they could sell their BTC tomorrow or have some problems in their core business hindering their financial performance.

So my suggestion is: if you want to get long bitcoin, please do, but avoid MSRT investment at any cost. Rather, buy GBTC shares on the secondary market, paying the premium.

[Poker Player]

I'm surprised no one has commented on this thread lately.

Surely it's because you give so much data that you don't leave anything to comment anymore, lol

It might be also because there are other few threads commenting on MS, but not with so much data.

It is clear that Saylor is betting heavily, in a way that time will leave him as either a genius or a madman, but not somewhere in between.

I am of the opinion, as are many, that in the recent rise of Bitcoin, Saylor has had a lot to do, and we have to thank him for that.

However, as suchmoon commented, he had accusations of fraud, that he settled by paying a fine without admitting or denying them. This, and his agressive take on bitcoin for his company should raise a red flag but who knows if he will be remembered in the future as the Bitcon Genius.

[fillippone]

Apparently, they completed the sale of their convertible bond:


https://twitter.com/michael_saylor/status/1362785854758993927?s=20

Please note that they allocated 14 days to perform the sale, but only one day was enough.

This could explain the price action, either or they already bought 1.05 Billion, or they are going to buy this soon!

[Poker Player]

Apparently, they completed the sale of their convertible bond:

Please note that they allocated 14 days to perform the sale, but only one day was enough.

This could explain the price action, either or they already bought 1.05 Billion, or they are going to buy this soon!

Yes, I just saw that. I believe it is the fundamental reason behind the pump. Correlation doesn't imply causation but it doesn't make it impossible either.

As I said before, we have to thank Saylor for the recent price increases and institutional adoption. Obviously they are not due to him alone but he has played an important role:

His company recently held a Summit on Bitcoin for Corporations attended by thousands of companies representatives.