MicroStrategy Inc. Michael Siler’s unorthodox decision to keep Bitcoin on its books instead of cash has put the once-obscure software company at the top of the richest corporations when it comes to financial assets.
The Tysons Corner, Virginia-based firm’s roughly $26 billion in bitcoin cash is larger than the cash and marketable securities of global market leaders such as International Business Machines Corp., Nike Inc. and Johnson & Johnson, according to data compiled by Bloomberg. . Apple Inc. and Alphabet Inc. Only about a dozen companies, led by Mr.
Siler, a co-founder and chairman, decided to invest in bitcoin as a hedge against inflation in 2020 when MicroStrategy’s revenue growth stalled. The firm initially used cash from operations for purchases, and moved to using the proceeds from stock issuances and sales as well as the sale of convertible debt to leverage its purchasing power. . It has become the largest publicly traded corporate holder of the digital currency.
While this strategy has drawn skepticism from traditional corporate governance observers, it has been embraced by investors as a beneficial way to participate in the bitcoin rally without having to deal with digital wallets or crypto exchanges. The company’s shares have risen more than 2,500% as Bitcoin’s value has risen nearly 700% since mid-2020, making it the best-performing US major stock during that period. Bitcoin rose to around $93,500 on Wednesday.
“Their balance sheet is basically a function of the price of bitcoin,” said Dave Zion, founder of Zion Research Group, a Chadds Ford, Pennsylvania-based firm that focuses on accounting and tax issues. “They’re not in control of the price of Bitcoin, so they’re just going to ride that wave, and it’s a wave that can go up or down.”
Most corporate treasurers use the company’s financial assets to support the business or generate profits, including paying dividends or funding share buybacks. Siler argues that shareholders benefit from a buy-and-hold strategy even though the company does not pay dividends.
MicroStrategy has devised its own performance indicator called Bitcoin Yield, which measures the percentage change in the ratio between its Bitcoin holdings and its hypothetical diluted shares outstanding from one period to the next. The year-to-date yield is 26.4%.
“Because we have volatility, a lot of what we do is actually sell the volatility, recycle the proceeds from the volatility into bitcoin, and then distribute it to our shareholders in BTC. are providing in the form of yield,” Siler said on an Oct. Conference call with analysts.
Saylor doubled down on the strategy, saying the company aims to raise $42 billion over the next three years. The firm’s total Bitcoin holdings were acquired for an aggregate purchase price of approximately $11.9 billion — less than half of the current value.
According to Mark Palmer, an analyst at Benchmark Co., who has a “buy” rating on the stock, there is no end in sight to this accumulate-and-hold strategy.
“Especially given the way bitcoin is going to transition in 2024, there’s really no reason for the company to deviate from that approach,” he said.
TD Cowen analyst Lance Vitanza also sees the market as embracing a micro-strategy approach as the company continues to gain access to larger capital markets, he wrote in a note to clients on Monday.
“What began as a defensive strategy to protect the value of its reserve assets has become an opportunistic strategy aimed at accelerating shareholder value creation,” said Vitanza, whose Pass also has a “Buy” rating on the shares. “This regenerative value creation deserves to be capitalized.”
