MicroStrategy is a $49 billion bitcoin holding company that wants $42 billion more in bitcoin

MicroStrategy is one of the most interesting companies in the market. 

Normally, when a company announces an at-the-market offering to issue new shares, its stock price declines because that offering will dilute the ownership of existing shares. If a company has 100 million shares, for example, and it plans to issue another 10 million shares, those preexisting shares now own 10% less of the company. In a rational market, you could expect a bigger offering to be accompanied by a sharper stock price sell-off.

MicroStrategy is not a normal company. On October 30, in conjunction with its Q3 earnings report, MicroStrategy President and CEO Phong Le announced that the company was planning to raise $42 billion over the next three years: $21 billion in new equity and $21 billion in fixed income, to “buy more bitcoin as a treasury reserve asset in a manner that will allow us to achieve higher BTC yield.”

Why $42 billion? Because it’s a meme from “The Hitchhiker’s Guide to the Galaxy.” You just can’t make this up: 

“The reason for that number is in part related to the science fiction series The Hitchhiker’s Guide to the Galaxy where a supercomputer calculates the answer to the question of life, the universe and everything as the number 42, according to MicroStrategy Chief Executive Officer Phong Le.

‘We believe it’s a unique number with some special characteristics. It’s the sum of 21 plus 21,’ Le said on an earnings call Wednesday. ‘We all know that 21 is a magic — a magical number in the world of Bitcoin. There can only ever be a maximum of 21 million Bitcoin in circulation.’”

Back to the business analysis. MicroStrategy has a market capitalization of approximately $49 billion. Ignoring the debt component of this fundraise for a moment, the new equity alone would account for more than 40% of the company’s current market capitalization. To be clear, the new stock probably won’t hit the market all at once, but MicroStrategy is now authorized to “offer and sell shares of our class A common stock having an aggregate offering price of up to $21,000,000,000 from time to time.” According to Bloomberg, this is more than 4x larger than the second-largest at-the-market stock offering on record. The impact on MicroStrategy’s stock price? It’s been flat for the last two days.

How? Because MicroStrategy is hardly a company at this point: it’s basically a holding company for bitcoin. OK, sure, MicroStrategy does still have a “software business” that made $116 million in revenue last quarter (down 10.3% year over year), but at this point, its software business is an afterthought. MicroStrategy itself says as much. The Business Overview section of the prospectus for this offering begins with:

“MicroStrategy® is the world’s first and largest Bitcoin Treasury Company. We are a publicly traded company that has adopted Bitcoin as our primary treasury reserve asset. By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate Bitcoin and advocate for its role as digital capital.”

It’s not until the second paragraph that the prospectus mentions its software business, which it still ties back to bitcoin and “digital asset growth.”

“In addition, we provide industry-leading AI-powered enterprise analytics software, advancing our vision of Intelligence Everywhere™. We leverage our development capabilities to explore innovation in Bitcoin applications, integrating analytics expertise with our commitment to digital asset growth. We believe our combination of operational excellence, strategic Bitcoin reserve, and focus on technological innovation positions us as a leader in both the digital asset and enterprise analytics sectors, offering a unique opportunity for long-term value creation.”

For a normal company with a shareholder base of investors concerned with metrics like EBITDA and cash flow, whose success relies on its own revenues and profits, ~40% equity dilution is a screaming “sell” signal. But for a company with a shareholder base concerned with metrics like “BTC yield,” whose success relies on the continued ascension of bitcoin’s price, issuing $42 billion to buy even more bitcoin is… bullish? Or, at least, it’s not necessarily bearish, because it means more buying power to further increase the price of the company’s existing 252,220 bitcoins. While this feels like a circular reference with MicroStrategy’s current bitcoin holdings benefiting from MicroStrategy buying more bitcoin, I can’t hate on it because the results speak for themselves: its stock is up 480% in the last year and 1600% in the last five years (though there was a small 80%+ drawdown from January 2021 to January 2023 when bitcoin’s price collapsed).

However, one aspect of this company that doesn’t make sense (as compared to the other aspects that make a lot of sense?) is that it has a $49 billion market cap, while the market value of its bitcoins is approximately $18 billion. Before bitcoin was easily tradable in noncrypto accounts, you could make an argument that MicroStrategy should trade at a premium as a loophole to buy bitcoin “stock.” Now that investors can buy bitcoin ETFs directly, though, it’s tough to rationalize why someone would pay a 200% premium to buy stock in a company buying bitcoin, vs. just buying the bitcoin itself. But people keep doing it anyway! Shout out Michael Saylor.