STRC: the bullshit dividend preferred stock

[Free Market Capitalist]

Let’s just call a spade a spade. STRC is the hot product from Strategy, Michael Saylor’s company, which is currently paying an 11.5% dividend based on a fairy tale.

The premise when the product was launched last year was that Bitcoin would appreciate by 30% CAGR over the next 20 years, and of that 30%, Saylor would use his Bitcoin purchases to smooth out volatility, allocating approximately 10% to pay dividends on the preferred shares—including STRC—and the remaining 20% would go toward increasing the value of the common stock.

This is total BS for one very simple reason: with the buying strategy Strategy has executed—which has consisted of buying heavily when the price skyrocketed and little or nothing when it fell—the return on those purchases is much lower than the asset’s return. Currently, Bitcoin’s cumulative return over the past 5 years is 16%, which is just a 3% CAGR (far from what Saylor is predicting) while Strategy has a negative return on its Bitcoin purchases of 12%.

The numbers are just too shocking, which is why I've started a separate thread.

Saylor can keep paying that dividend as long as there are people who buy whatever he issues without thinking much. Do you know how it can pay dividends? From new investors who buy more STRC or MSTR. In other words, he needs new buyers of STRC to pay the dividends to those who already own the stock. Does that sound familiar to you?

You can see an example of his usual salesman BS that people swallow without thinking much here, where he makes a shoddy comparison of STRC with assets that aren't comparable.

[MadSl1m]

Quick sanity check on the numbers  .

The "Strategy is -12% on its BTC stack" was actually right at the time of this post. Avg cost basis $75.7K, BTC was $66-67K on March 30. As of May 22 they're roughly flat at +$1,100/coin, but on March 30 you were correct.

The "16% BTC cumulative over 5 years" depends entirely on which March 2021 day you start. Late March 2021 ~$58K to today gives you about 15%. But early March 2021 was closer to $45K, which puts the same 5-year return at +49%. Pick the bottom of the month and the math is very different.

On the dividend-via-new-buyers point, STRC's mechanism does depend on continuous ATM flow, that part is structurally accurate. Whether that's a Ponzi or a board-managed preferred with a liquidation preference and real cash flows from an $54B BTC treasury is a separate question. The structural concern is fair, but "fairy tale" is doing a lot of work.

[Free Market Capitalist]

Quick sanity check on the numbers  .

The "Strategy is -12% on its BTC stack" was actually right at the time of this post. Avg cost basis $75.7K, BTC was $66-67K on March 30. As of May 22 they're roughly flat at +$1,100/coin, but on March 30 you were correct.

The point is that the biggest Bitcoin buyer, which calls itself "Strategy" has a strategy that after almost 6 years of buys has yielded a very crappy result.

The "16% BTC cumulative over 5 years" depends entirely on which March 2021 day you start. Late March 2021 ~$58K to today gives you about 15%. But early March 2021 was closer to $45K, which puts the same 5-year return at +49%. Pick the bottom of the month and the math is very different.

I wasn't picky with the date. I just went to google, searched "BTC USD" and chose the 5 years result. And even the 49% is far below a 30% CAGR.

On the dividend-via-new-buyers point, STRC's mechanism does depend on continuous ATM flow, that part is structurally accurate. Whether that's a Ponzi or a board-managed preferred with a liquidation preference and real cash flows from an $54B BTC treasury is a separate question. The structural concern is fair, but "fairy tale" is doing a lot of work.

The point here is that STRC's dividend is based on a hope, not actual numbers. And what the company is getting is not cash "flow" is cash access.

[The Sceptical Chymist]

Shit is definitely starting to smell funky with Saylor and Strategy as time goes along.  But since I don't own their stock or even like that they own so much BTC or care for the fact that they started the pea-brained trend of 'crypto treasuries', the only thing I can say is that shareholders of Strategy are going to get what they deserve in the long-term (and that's either going to be good or bad--who knows?).

And well....it's not the first time Wall Street has seen creative financial engineering. 

[WillyAp]

11.5 % you need 8.7 (a little less) to doble your investment.
So far its paying out for many, every 9 month you retire you initial investment.
Its saver than BTC and hodling.

[The Sceptical Chymist]

<snip>they started the pea-brained trend of 'crypto treasuries'<snip>

Oh my lord, speaking of that....I just stumbled across one of the absolute worst examples of a broken-legged corporation chasing and somehow managing to jump on a bandwagon in an effort to ride the crypto boom (though admittedly that jump is about as hard as Lebron James hopping a curb):

https://finance.yahoo.com/quote/CYPH/Cypherpunk Technologies Inc. (CYPH)

If someone can tell me with a straight face that those boneheads running that joke of a company didn't just steer it off a cliff by making it a proxy for ZEC through the mystical transmogrificational powers inherent in the 7-sigma trisomy 21 humans, then we can talk about me staking you in the WSOP.  Amazing.  Having a privacy coin be your company's treasury right now. 

They would have had a better chance of success had they just bought Pokemon cards and such things.

[stompix]

Saylor can keep paying that dividend as long as there are people who buy whatever he issues without thinking much. Do you know how it can pay dividends? From new investors who buy more STRC or MSTR. In other words, he needs new buyers of STRC to pay the dividends to those who already own the stock. Does that sound familiar to you?

You're just mean, buying an asset with borrowed money, hoping to drive up the price of said asset that you can then sell to pay the interest of the money you loaned is not a ponzi!
Definitely not a ponzi, as....well, yeah you need a constant influx of money and yeah, there is no magical guarantee that the asset is going up but...but... not a ponzi

Sometimes I  wish Bitcoin would go for a 4-5 years of a complete bear period to shake off all those hyenas that suddenly realized how good Bitcoin is once they smelled the money.
I have some popcorn put aside when this cheap copy of Bernie will finally flop, it's going to be pretty entertaining!

[Free Market Capitalist]

Oh my lord, speaking of that....I just stumbled across one of the absolute worst examples of a broken-legged corporation chasing and somehow managing to jump on a bandwagon in an effort to ride the crypto boom (though admittedly that jump is about as hard as Lebron James hopping a curb):

https://finance.yahoo.com/quote/CYPH/Cypherpunk Technologies Inc. (CYPH)

This company's situation is similar to that of all the others that tried to copy Saylor's treasury model, but with shitcoins instead of Bitcoin. If the Bitcoin ones are doing so-so to bad, the rest are even worse.

You're just mean, buying an asset with borrowed money, hoping to drive up the price of said asset that you can then sell to pay the interest of the money you loaned is not a ponzi!
Definitely not a ponzi, as....well, yeah you need a constant influx of money and yeah, there is no magical guarantee that the asset is going up but...but... not a ponzi

Sometimes I  wish Bitcoin would go for a 4-5 years of a complete bear period to shake off all those hyenas that suddenly realized how good Bitcoin is once they smelled the money.

A bear market lasting 4–5 years would be completely normal. We’re used to the early years of each cycle having a bull market, but having a cycle or two with no ATHs within a long-term upwards trend is by no means out of the question. Just look at the Nasdaq 100, or gold, or whatever. They all have relatively long periods like that.

[stompix]

A bear market lasting 4–5 years would be completely normal. We’re used to the early years of each cycle having a bull market, but having a cycle or two with no ATHs within a long-term upwards trend is by no means out of the question. Just look at the Nasdaq 100, or gold, or whatever. They all have relatively long periods like that.

It would be normal for other assets...for crypto, nope!
We (as a community) have gotten used to cycles of 4 years , hold and you triple your money, Bitcoin being the best return of investment over different periods, stuff likethis, a 4-5 year period of continuous declining pure bearish money losing period? It will be like a purge or a more deserved cleansing, and of course, for altcoins it will also be a death sentence, not that I care too much about those.

We already see signs that people are getting anxious, they see huge gains in other sectors, the AI bubble rising and rising, and they look and see crypto down, 5 years of this? Nope! 3 years and Saylor will be tweeting how he got a $10 loan from a homeless guy to buy more satoshis.

[savetheFORUM]

Saylor can keep paying that dividend as long as there are people who buy whatever he issues without thinking much. Do you know how it can pay dividends? From new investors who buy more STRC or MSTR. In other words, he needs new buyers of STRC to pay the dividends to those who already own the stock. Does that sound familiar to you?

You're just mean, buying an asset with borrowed money, hoping to drive up the price of said asset that you can then sell to pay the interest of the money you loaned is not a ponzi!
Definitely not a ponzi, as....well, yeah you need a constant influx of money and yeah, there is no magical guarantee that the asset is going up but...but... not a ponzi

Sometimes I  wish Bitcoin would go for a 4-5 years of a complete bear period to shake off all those hyenas that suddenly realized how good Bitcoin is once they smelled the money.
I have some popcorn put aside when this cheap copy of Bernie will finally flop, it's going to be pretty entertaining!

Lol, you guys are forgetting that this guy is also making revenue right? I mean not a lot, and yes his bitcoin stash is the reason people do invest into his company, but dividends do not need to be 100 billion dollars, if they make a profit they give out and if they do not, then they don't. He doesn't have to get influx of new money to pay dividends, he doesn't have top ay dividends. Not saying it is not a Ponzi, maybe it is, maybe it is not, I would not know.

Just saying that this is not some company who only gets money from people and buy bitcoin, it is an actual real tech company who makes revenue and use their profits to buy bitcoin. So if they do give dividends the expectation for them is to make sales and earn that money from the tech side of things.

[stompix]

Lol, you guys are forgetting that this guy is also making revenue right?

Just saying that this is not some company who only gets money from people and buy bitcoin, it is an actual real tech company who makes revenue and use their profits to buy bitcoin

Lol, "you guy" is forgetting that that guy runs a business that is a total loss, right?

Sheet from last quarter

$124.3M Total revenue
Cost of revenues   $40.9M   
Sales & marketing   $36.3M   
R&D   $24.7M   
G&A   $37.4M
---------------   
-$14.5M Operational loss

Profits, lmao!

[Free Market Capitalist]

Lol, you guys are forgetting that this guy is also making revenue right?

Just saying that this is not some company who only gets money from people and buy bitcoin, it is an actual real tech company who makes revenue and use their profits to buy bitcoin

Lol, "you guy" is forgetting that that guy runs a business that is a total loss, right?

Sheet from last quarter

$124.3M Total revenue
Cost of revenues   $40.9M   
Sales & marketing   $36.3M   
R&D   $24.7M   
G&A   $37.4M
---------------   
-$14.5M Operational loss

Profits, lmao!

That’s the problem I usually run into when I discuss this topic on the forum. No one would think of going to the technical sections and starting to lecture others with so little knowledge, but on this topic, people who’ve watched a couple of Saylor videos think they know a lot; they argue with you when they don’t have even the most basic understanding, and when you explain in detail why they’re wrong, they either get angry or disappear without acknowledging their mistake (it wouldn’t hurt to say “you’re right”).

[Alpen]

People can view MicroStrategy's STRC issuance however they want, but the fact remains: Saylor will be forced to start selling his accumulated Bitcoin for the very first time.

This is set to happen at the end of the year, and the crypto market's reaction will show us what happens if Strategy has to repeatedly sell Bitcoin to maintain its corporate debt balance.

It would be pretty ironic if the world's premier cryptocurrency crashes because of a single company. Then again, there's no need to panic even if that happens. Nature abhors a vacuum—someone else will always step up

[Free Market Capitalist]

People can view MicroStrategy's STRC issuance however they want, but the fact remains: Saylor will be forced to start selling his accumulated Bitcoin for the very first time.

This is set to happen at the end of the year, and the crypto market's reaction will show us what happens if Strategy has to repeatedly sell Bitcoin to maintain its corporate debt balance.

This is unbelievable. I think I'm the person on this forum who follows Strategy news the most, and I had no idea about this. Do you have a source you can link to?

It seems to me that this is just another case of someone making a claim like that simply because it occurred to him.

[dansus021]

and those strategy if that really works gonna be applied in other, I heard that Metaplanet from Japan also had similiar things. Im still like when traditional market want to the piece of pie of bitcoin but Strategy is doing something else in my opinion. and you are exposing the exact structural risk that every bear analyst on Wall Street is screaming about this month. When you look at an $10.5 billion preferred stock program (STRC) paying an 11.5% cash dividend out of a software business that only brings in ~$124 million in quarterly revenue, the traditional accounting math completely breaks down.

At this point Saylor isn't running a software company anymore; he’s running a leveraged Bitcoin and if just IF he fails the Bitcoin gonna hit hard, but if the Strategy works I do believe that he gonna make new stock for other crypto maybe ETH is next

[WillyAp]

This is set to happen at the end of the year, and the crypto market's reaction will show us what happens if Strategy has to repeatedly sell Bitcoin to maintain its corporate debt balance.

Why? As long as he enjoys a good Credit standing he's nothing to worry about. Average price tag is at $75,699. With
843,738 BTC in total BTC Holdings $100 raise makes a healthy amount.
 

https://www.coingecko.com/en/treasuries/companies/strategy

[Alpen]

This is set to happen at the end of the year, and the crypto market's reaction will show us what happens if Strategy has to repeatedly sell Bitcoin to maintain its corporate debt balance.

Why? As long as he enjoys a good Credit standing he's nothing to worry about. Average price tag is at $75,699. With
843,738 BTC in total BTC Holdings $100 raise makes a healthy amount.
 

Michael Saylor said it himself while commenting on the company's quarterly earnings report

[el kaka22]

While the math is not checking out, all he wagered was that it would do better in the next 5 years than the previous 5 years and for that reason I think as long as he can fix his buying structure, it should not be a big deal. I get that he bought at terrible times, and even right now at a loss, if he did better buying during 2022 then he would have been richer right now and this method would have worked out for them.

The only downside is that he buys in bulk when it is expensive, his buying needs to be fixed, there is nothing wrong with his method aside from that. You can still buy bitcoin and then have a good return on this dividends and not have to smooth out. I do not think he has any money left to buy at cheap now though.

[WillyAp]

He plays it smart, the 1st coins he bought, well he bought them way below 71k.
So if you buy at 30k and sell at 70 you make a healthy profit on those coins.

All people see is the average price, which for him is meaningless.

[stompix]

This is set to happen at the end of the year, and the crypto market's reaction will show us what happens if Strategy has to repeatedly sell Bitcoin to maintain its corporate debt balance.

Why? As long as he enjoys a good Credit standing he's nothing to worry about. Average price tag is at $75,699. With
843,738 BTC in total BTC Holdings $100 raise makes a healthy amount.
 
https://www.coingecko.com/en/treasuries/companies/strategy

Yup, complete genius!

Current Value $56.57B
Total Cost $63.87B

Nothing screams genius more than having to pay 11.5% on money you invested with  ..lol ironically  -11.4% loss!
The only genius thing in this is that he is playing with other people's money, so as long as the planet is still full of idiots with money, he is safe.
The idiots, well, not so much!