Why $MSTR has been Smashing ATMs and not Convertible Bond Offers.

Summary

In this video, Forest Stevens discusses MicroStrategy's strategy of acquiring Bitcoin through at-the-market share issuances and convertible bonds. He explains why the company's share price hasn't seen significant appreciation despite strong market performance, focusing on their approach to acquiring Bitcoin rather than maximizing share value. Stevens also highlights the potential for future convertible bond issuances, the strategic importance of Bitcoin reserves, and the impact of macroeconomic factors like interest rate cuts on debt leverage. Overall, he emphasizes the long-term benefits of MicroStrategy's approach to Bitcoin acquisition and its de-risking strategy.

Takeaways

• 😀 MicroStrategy's strategy involves issuing new shares at the market and acquiring Bitcoin, rather than focusing on share price appreciation.
• 😀 The company has been aggressively issuing new shares to raise cash, which is then used to buy more Bitcoin, strengthening its balance sheet.
• 😀 While issuing shares at the market doesn't create leverage, it builds up Bitcoin reserves, laying the foundation for future debt strategies.
• 😀 Michael Saylor, CEO of MicroStrategy, believes a strategic Bitcoin reserve in the U.S. will drive corporate and nation-state adoption, influencing the company's aggressive Bitcoin acquisition strategy.
• 😀 The company's balance sheet is growing rapidly with Bitcoin purchases, which will provide a stronger foundation when they start using debt instruments like convertible bonds.
• 😀 There is speculation that the company may issue convertible bonds soon, once its asset base is stronger and it has more Bitcoin to back such debt.
• 😀 The company's debt issuance is considered riskier by some, but Saylor is trying to mitigate this by accumulating Bitcoin first to lower the risk when debt is issued.
• 😀 Convertible bonds offer lower interest rates, and MicroStrategy could potentially issue bonds with negative interest rates, where bondholders pay to buy them.
• 😀 MicroStrategy's performance has exceeded expectations, with its stock price rising significantly, even though the market doesn't fully understand its Bitcoin acquisition strategy.
• 😀 The company has been issuing shares faster than expected, but this strategy may be beneficial in the long term, allowing them to acquire more Bitcoin at a better price before the market shifts.

Q & A

What is MicroStrategy's primary strategy for acquiring Bitcoin?

MicroStrategy's primary strategy involves issuing new shares to raise cash, which is then used to buy Bitcoin. This process helps the company accumulate more Bitcoin while keeping debt levels low.

Why has the price of MicroStrategy’s stock remained relatively stable despite their Bitcoin acquisitions?

The stock price has remained stable due to the issuance of new shares to the market. This approach results in no immediate price appreciation because the money raised from new shares is used to acquire Bitcoin rather than driving the stock price up.

How does the issuance of convertible bonds fit into MicroStrategy’s strategy?

Convertible bonds are part of MicroStrategy’s future strategy to raise capital by offering bonds that can later be converted into company shares. This allows them to leverage their Bitcoin holdings and raise additional funds for further Bitcoin purchases without taking on significant debt.

What is Michael Saylor’s vision for Bitcoin, and how does it influence MicroStrategy's approach?

Michael Saylor believes that Bitcoin will become a strategic reserve asset for nations and corporations, similar to gold. This vision drives MicroStrategy’s aggressive Bitcoin acquisition strategy, as Saylor aims to position the company as a leader in the growing Bitcoin economy.

How does MicroStrategy’s use of new shares to raise capital differ from traditional methods of raising funds?

Unlike traditional methods that might involve taking on debt, MicroStrategy raises capital by issuing new shares, which does not directly increase their liabilities. Instead, the proceeds from this share issuance are used to acquire Bitcoin, effectively increasing their asset base.

What risks are associated with MicroStrategy's strategy, particularly in terms of debt and leverage?

The primary risk is that leveraging debt or convertible bonds can lead to a higher level of financial risk. However, by issuing shares to raise funds first, MicroStrategy mitigates some of this risk by strengthening its balance sheet with Bitcoin holdings, reducing reliance on debt.

What is the role of quantitative easing and the Federal Reserve's interest rate decisions in MicroStrategy's strategy?

The Federal Reserve's decisions, particularly regarding interest rates, impact the cost of issuing debt. If the Fed cuts interest rates, it becomes cheaper for MicroStrategy to issue convertible bonds, potentially enabling them to raise more capital at favorable rates for Bitcoin purchases.

What are the benefits of MicroStrategy holding a large amount of Bitcoin on their balance sheet?

Holding a large amount of Bitcoin enhances MicroStrategy’s asset base, making it easier to issue convertible bonds at better terms. It also positions the company as a leader in Bitcoin adoption, potentially benefiting from future corporate and nation-state adoption of Bitcoin as a reserve asset.

What concerns do critics have about MicroStrategy's approach, and how does the company address them?

Critics are concerned about the potential risks associated with leverage, particularly regarding the convertible bonds and debt. MicroStrategy addresses this by first issuing shares to increase its asset base (Bitcoin), which reduces the risk when it eventually issues convertible bonds.

How does the issuance of shares impact the market and MicroStrategy’s shareholders?

Issuing new shares can potentially dilute existing shareholders and suppress stock price appreciation in the short term. However, the proceeds from these shares are used to acquire Bitcoin, which may lead to long-term value appreciation if Bitcoin's price increases significantly.