Introduction MicroStrategy Inc. has again been in the news with its aggressive strategy to buy more and more bitcoin, shelling out as much as $2.1 billion to buy another 21,550 bitcoins between Dec. 2 and Dec. 8. But the ambitious purchase of bitcoin has been coming at a cost to the shareholders of the company, as the stock prices slump with the recent share sales. This article examines the financial steps taken by MicroStrategy, how it has affected shareholders, and what this means for the company's future.
Key Takeaways
MicroStrategy spent $2.1 billion on 21,550 bitcoins at an average price of $98,783.
The company raised money by selling more than 5.4 million shares, diluting shareholders in the process.
As of Dec. 8, MicroStrategy owns a total of 423,650 bitcoins, valued at around $41.3 billion.
The company's stock has plunged in the last few weeks while the price of bitcoin has been growing.
One may question the sustainability of such large-scale bitcoin purchases and whether this is good for the shareholders.
MicroStrategy's Aggressive Bitcoin Strategy
The decision by MicroStrategy to continue loading up on bitcoin through stock sales is a bold bet—on the future of the cryptocurrency market. In just a week, the company doled out $2.1 billion for bitcoin, buying more than 21,500 coins at an average price of $98,783. To finance the purchases, MicroStrategy sold over 5.4 million shares for a total of $2.13 billion.
The plan is part of MicroStrategy's broader scheme unveiled in late October to raise as much as $21 billion over three years through share sales to stock up on bitcoin. Through December 8, it still had about $9.2 billion left in planned share sales.
But such large-scale share sales come at a cost. By issuing more outstanding shares, MicroStrategy is diluting its stock: The same shareholders now have smaller pieces of the company. In part, this dilution has contributed to a rout in the company's stock price, which was off around 6% on the day the purchases were announced.
Impact of Bitcoin Purchases on MicroStrategy's Stock
While the value of bitcoin has surged in recent months and boosted MicroStrategy's overall holdings to $41.3 billion, the company's stock has failed to keep pace with that success. Even as bitcoin surged 130% this year, for example, MicroStrategy's stock is down more than 21% since reaching a record $473.83 in November.
While the aggressive strategy of acquiring bitcoin has paid off in terms of asset value—the company's bitcoin holdings are worth far more than what it has spent to acquire—it has one critical drawback. The cost of raising money through the sale of shares. Every new share sold diluted EPS, a metric investors watch carefully.
In the last report, MicroStrategy's revenue per share was 48 cents per share, down from 59 cents in the prior quarter. That dilution effect could start to really be felt if bitcoin's price starts to slide, or if the performance of the stock lags behind an appreciating price of the underlying asset.
Bitcoin's Role in MicroStrategy's Strategy: A Double-Edged Sword
In itself, such a big bet placed by MicroStrategy rests on the assumption of further increase in the price of the cryptocurrency. So, while heavily betting on its long-term potential, MicroStrategy cemented its position of being an industry leader in corporate bitcoin investments. As of Dec. 8, the company owns 423,650 bitcoins, which are currently worth about $41.3 billion — significantly higher than the $25.6 billion laid out for the holdings.
But the risks here are obvious. Bitcoin is a wild asset, and the stock performance of the company has shown that even large gains in bitcoin are not necessarily translated into shareholder success. If the price of bitcoin starts to fall, or perhaps investors get tired of its dependence on the cryptocurrency, MicroStrategy may feel significant heat from the market and its investors.
Conclusion
MicroStrategy's latest purchase of bitcoin evidences the company's belief in cryptocurrency's future, but it doesn't come without consequences for its shareholders. The strategy of raising billions through share sales to fund the purchase of bitcoin has resulted in stock dilution and a decrease in earnings per share. While the value of the held bitcoin keeps rising, the long-term implications of such decisions on the stock price and shareholder value of MicroStrategy remain uncertain.
Investors will have to pay attention to both the performance of bitcoin and the lingering effect of MicroStrategy's share sales. As it goes ahead with its ambitious plan to raise up to $21 billion through additional stock sales, the question is whether the value of its bitcoin holdings would keep outweighing the cost to shareholders. Only time will tell.
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