But wouldn't that put shareholder value at "risk"? and I'm just talking from a business model/growth type of risk...selling shares and the consequent increase in value is more biased towards the underly digital asset as opposed to better / more competitive tech (MSTR products and services) and consequently better cashflow? So while MSTR may increase SVA in the short run the longevity of the business would be at risk in the long run?
Discussion
My response is based on what I’ve heard Saylor say regarding the subject, but basically it boils down to this:
They can’t compete with their competitors like Oracle and IBM when it comes to R&D spend, or employee acquisition/retention based on their primary business model of enterprise software. Essentially they were a business doomed to fail prior to the bitcoin treasury strategy.
By adopting bitcoin as a treasury reserve asset, they have a way to preserve their cash flows in an instrument that will appreciate against the value of their cashflows, which will increase their equity value, allowing them to sell more shares to fund whatever they want to fund, which seems to primarily be buying more bitcoin.
Now, you’re right in that there is shareholder dilution, but the goal is to have the bitcoin acquisition increase the value of the company more than the shares are diluted, similar to the acquisition of a business which provides more value to shareholders than the opportunity cost of acquiring that company, I.e. his goal is to make the purchase in of bitcoin an accretive endeavor for shareholders. So far, this has been the case.
He has essentially positioned the company to be a bitcoin investment vehicle more so than an enterprise software company. Institutional investors that can’t buy bitcoin can buy microstrategy stock and therefor get leveraged exposure to the underlying asset. They just take on counterparty risk regarding how microstrategy custodies their bitcoin. But essentially, they’re a leveraged bitcoin etf that has underlying cash flow from an enterprise software company rather than charging a management fee like a traditional ETF would.
A future unclear question in my mind is, if their MacroStrategy (as they’ve branded it) pans out and they 10-20x their market cap, would they scale the core business or do M&A in order to grab market share from the bigger data-analytics companies?
Or is it a situation where it’s a fun trivia fact years from now, that this bitcoin holding company started as a small enterprise data company, like how Berkshire started as a small textile company?
Of those two scenarios, likely the latter. Although I think if they were looking to spend more money on improving their cash flows, they wouldn’t try to take market share from their competitors in enterprise software but rather look to carve out a niche in providing enterprise-oriented bitcoin solutions, layer 3 work, web5 work with @jack etc.
I don’t see them as being interested in trying to overtake IBM and Oracle, but rather being the Bitcoin enterprise software company. That’s their win condition, from a cash flow perspective
Yeah, I think that’s spot on.
Not to mention they’re frontrunning banks and the giant tech companies with their balance sheet.
Bitcoin either gets attacked by government or it doesn’t. If it doesn’t get attacked, then the accumulation done by companies like apple Google meta Nvidia etc combined with the large banks will give them one of the largest debt-to-equity ratios in the US market.
If the government does try to attack bitcoin, either via harmful regulation or attempted seizure, we’ll see how it plays out on whether the govt will actually get the bitcoin, or if Saylor tries to hop ship, burns the keys, etc etc. Uncharted waters in this scenario.
Shareholder value was more at risk prior to the bitcoin strategy. Most other business analytics companies went away or were absorbed into the tech titans. MicroStrategy was hanging on, but it was a melting ice cube, which then makes it hard to attract the best employees or maintain the best economy of scale, which then accelerates the melting of the ice cube.
And within the bitcoin strategy, taking on debt is the bigger risk. If bitcoin is in a bear market when their debt matures and without a lot of gains from the cost basis, that could cause them to dilute equity at a bad time, or have to sell bitcoin, or do other inopportune actions that would damage shareholder value.
Issuing overvalued equity to buy more bitcoin and thus improve the bitcoin-per-share metric, mildly de-risks the company by improving the equity/debt ratio, and is good for shareholder returns, assuming shareholders are bullish on bitcoin (which by this point, most of them are). It makes the overall company size way bigger, gives them a warchest of capital if they need it, helps them hire top talent including for their business analytics business, and reverse the melting ice cube trap.
Another thing to take into account is what would the ROI of taking an equivalent amount of capital and investing into their core business activities. The invested cash into operations maybe would equate to long term operations growth of 1-2% annually or plateau after a few years. Then reinvestment needs of the marginally increased cash flow….reinvest that back into operations and again earn 1-2%? If earned cash flow is instead invested into bitcoin quarterly and we are correct on the bitcoin thesis then they purchase a drastically smaller amount of bitcoin over the years had they not engaged in the current strategy of equity issuance and YOLOing
Straight up having a hedge against the large players in the space and a devaluation of cashflows is better than trying to dig a trench to fight out of with a toothpick.
Having said that from an outsider looking in…even if they believe (and most Bitcoin investors do) the return on BTC as an asset may provide the safety they need…the thesis is more about using it as an asset as opposed to payment/currency…now while the latter may not be realized right away, don't you guys think (if this was your invested “cash”) to shy away from businesses that won't generate the cashflow from operations needed to preserve that asset should it becomes as widely adopted as opposed to having your shares diluted as @Knightstr and @ghostBTCBLD suggested?
bravo assessment