30s Summary

MicroStrategy’s Bitcoin holdings value has surged to around 270% of its net worth, reportedly yielding approximately 2.7 times higher return for MSTR shareholders than holding Bitcoin. The company’s use of financial tools such as equity offerings and convertible notes to leverage its assets, particularly Bitcoin, and its software business revenues reportedly drive this value increase. MicroStrategy’s CEO Michael Saylor’s aggressive Bitcoin purchasing has significantly benefitted the company, outperforming Bitcoin and other traditional stocks with a value increase of 1,700% since its first Bitcoin purchase.

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The value of MicroStrategy’s Bitcoin holdings compared to its overall net worth has shot up to its highest in three years, hitting about 270% on October 14, stats from MSTR-Tracker show. The difference between the company’s market cap and the value of its Bitcoin stash tells us this. Meaning, if you’re holding MSTR shares, you’ve got a return about 2.7 times higher than if you’d just held onto Bitcoin.

What’s the reason behind this? Two main things. The company’s skillful use of financial tools to boost its Bitcoin holdings, and the money it creates from its software business.

MicroStrategy uses things like equity offerings and convertible notes to increase the value of its Bitcoin holdings. As of October 14, it was carrying about $3.91 billion in long-term debt, while having a market cap of $35 billion. This suggests that its assets are 1.1 times leveraged compared to its equity. In more understandable terms, for every $1 of equity, MSTR controls $1.1 of assets (mostly Bitcoin), all thanks to its use of debt.

Consider this. Let’s say Bitcoin’s value climbs by 10%. Without using leverage, the value of MicroStrategy’s Bitcoin would also go up by 10%, and their stock price would rise too. But because they’re using debt, they control more Bitcoin than their actual money would allow. So, with a 10% Bitcoin increase, the value of the company’s total assets goes up by about 11% instead of 10%. Basically, good use of leverage helps boost MSTR’s value.

Don’t ignore MicroStrategy’s software business. Though it takes a backseat, it still brought in about $111 million during Q2, with subscription revenues climbing steadily. This steady flow of cash helps them manage their debt and keep buying more Bitcoin.

This isn’t the main deal, but it sure helps MSTR handle its Bitcoin ambitions without needing to sell off Bitcoin to manage debt. This way, they can keep their Bitcoin stash and high net value.

Investors also really dig MicroStrategy’s all-in attitude towards Bitcoin. CEO Michael Saylor’s aggressive Bitcoin buying strategy has paid off big time since it began in August 2020, outdoing Bitcoin and other traditional stocks.

Look at this. Since buying its first Bitcoin, MSTR’s value has shot up by 1,700%. In that same period, Bitcoin’s returns were around 500%, leading one analyst, Maartunn, to call it “Bitcoin on steroids.”

Major US stock indexes like the S&P 500 and the Nasdaq? They’ve delivered returns of about 80% and 70% respectively. So investors are more than ready to cough up a premium for MSTR because they expect the company to keep stacking up its Bitcoin holdings even more, especially if Bitcoin carries on its uphill trend.

It’s important to note, however, that all investing comes with risks. Always do your homework before making any trading decisions.

Source: Cointelegraph