The Unstoppable Rise of MicroStrategy
A Unique Breed of Shareholders
MicroStrategy, led by Michael Saylor, has defied conventional wisdom by tripling its stock price this year, surpassing Coinbase as the largest crypto stock. Despite announcing a massive plan to sell $21 billion of new shares, the company’s stock rose 1% on Thursday, leaving many puzzled.
Upside-Down Economics
In Saylor’s world, traditional economic principles seem to be turned on their head. He has transformed MicroStrategy, once a relatively unknown software business, into corporate America’s largest bitcoin bull, amassing a staggering stockpile of the cryptocurrency.
Dilution as a Positive
On Wednesday, MicroStrategy announced its plan to issue and sell $21 billion of its own stock, a move that would typically drive down the stock price of most publicly traded companies. However, MicroStrategy’s unique circumstances and fervent fanbase have led to a different outcome. The company’s market capitalization was around $50 billion when the plan was announced, meaning the ownership stake represented by existing equity would be diluted by roughly one-third. Yet, instead of a 33% plunge, MicroStrategy’s shares rose, driven by investor confidence in the firm’s accretive dilution strategy for bitcoin.
A Testament to Investor Confidence
“This is a testament to investor confidence in the firm’s accretive dilution strategy for bitcoin,” said Joe Consorti, head of growth at Theya. “MicroStrategy leverages capital markets to buy bitcoin, diluting shares by issuing more, but accreting shareholder value via its bitcoin purchases.” The stock sale, an at-the-market equity offering, allows companies to sell shares directly at prevailing prices, providing a more flexible way to raise capital.
A Record-Breaking Offering
This offering is, in fact, the largest of its kind, dwarfing previous records by a factor of four, according to data compiled by Bloomberg. The fact that MicroStrategy shareholders are accepting dilution at prevailing prices, rather than demanding a steep discount, highlights the strength of their belief in Saylor’s corporate strategy.
A Unique Cohort
“MicroStrategy shareholders are a unique cohort,” said James Van Straten, senior analyst at CoinDesk. “Typically, when shareholders get diluted, this is a bad thing. However, as a MicroStrategy shareholder, I celebrate being diluted as I know MicroStrategy are going out and buying bitcoin, which increases the bitcoin per share as a company, which is accretive for shareholder value.”
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