Michael Saylor’s unorthodox decision to hold Bitcoin instead of cash on MicroStrategy Inc.’s books has catapulted the once-obscure software maker into the upper echelon of the wealthiest corporations in terms of financial assets.
The Tysons Corner, Virginia-based company’s roughly $26 billion Bitcoin cache 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. Only a dozen companies, head the apple Inc. and the alphabet Inc., have more assets in their corporate treasuries.
Saylor, co-founder and president, decided to invest in Bitcoin in 2020 as a hedge against inflation while MicroStrategy’s revenue growth stalled. The company initially used cash from operations to make acquisitions, and has shifted to using proceeds from the issuance and sale of shares, as well as the sale of convertible debt, to leverage its purchasing power. It has become the largest publicly traded digital currency company.
While the strategy has drawn skepticism from traditional observers of corporate governance, investors have embraced it as a leveraged way to participate in Bitcoin’s rally without having to deal with digital wallets or crypto exchanges. The company’s shares are up more than 2,500%, as the value of Bitcoin has increased by about 700% since mid-2020, the most important US stock in the period. Bitcoin hit a record high of nearly $93,500 on Wednesday.
“Their balance sheet is primarily 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 don’t control the price of Bitcoin, so they’re going to ride that wave, and it’s a wave that can go up or down.”
Most corporate treasurers use a company’s financial assets to support the business or generate profits, such as paying dividends or financing stock buybacks. Saylor argues that shareholders benefit from a buy-and-hold strategy even if the company does not pay a dividend.
MicroStrategy has come up with its own performance indicator called Bitcoin yield, which measures the percentage change in the ratio of its Bitcoin holdings to its supposed diluted shares from one period to the next. This annual return is 26.4%.
“Because we have volatility, a lot of what we do is sell volatility, recycle the volatility returns back into Bitcoin, and then pass it on to our shareholders in the form of BTC yield,” Saylor said in October. conference call with analysts.
Saylor has doubled down on the strategy, saying the company aims to raise $42 billion over the next three years. The company’s entire Bitcoin holdings were acquired for an aggregate purchase price of $11.9 billion, less than half of its current value.
This build-and-hold strategy has no endgame in sight, according to Mark Palmer, an analyst at Benchmark Co., who has a “buy” rating on the stock.
“Given the way Bitcoin has moved in particular in 2024, there’s no reason for the company to deviate from that vision,” he said.
TD Cowen Analyst Lance Vitanza also sees the market supporting MicroStrategy’s outlook as the company continues to be able to access major 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, who also has a “buy” rating on the stock. “This recurring value creation is worth capitalizing on.”
