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The MSTR advantage

Composed by Emanuele Marabella, Building Engineer and MSTR shareholder,

Published on April 14, 2022

On December 16th of 2021, MicroStrategy held an Investor Day event, where CEO, Michael Saylor explained the case for MicroStrategy being the best available BTC investment vehicle. This article will review those declarations.

The Genesis

When MicroStrategy® Incorporated (Nasdaq: MSTR), led by Chairman and CEO Michael Saylor released their Q2 2020 financial results on July 28, 2020, they announced their capital allocation strategy:

"With more than $500 million in cash and cash equivalents... MicroStrategy will seek to invest up to (another) $250 million... which may include stocks, bonds, commodities such as gold, digital assets such as Bitcoin, or other asset types."

Soon after, on August 11, 2020, MicroStrategy announced their first purchase of BTC (0.1% of Bitcoin's entire supply) as a primary treasure reserve asset:

"MicroStrategy, the largest independent publicly-traded business intelligence company, today announced that it has purchased 21,454 bitcoins at an aggregate purchase price of $250 million"

The Latest Acquisition

On April 5, 2022, MicroStrategy Incorporated announced that, during the period between February 15, 2022 and April 4, 2022, through its wholly-owned subsidiary, MacroStrategy LLC, they have acquired approximately 4,167 supplemental bitcoins:

MicroStrategy Investor Day

On December 16th, 2021, CEO, Michael Saylor made the following remarks regarding MSTR being a superior BTC investment vehicle in comparison to a bitcoin ETF, a bitcoin miner and the cryptocurrency itself.

Saylor prides himself on the fact that MSTR has been a publicly traded company on the Nasdaq since 1998, and states that they are a seasoned security and a know entity making it a simple on ramp for investors looking for BTC exposure. Furthermore, Saylor declares, as an operating company MicroStrategy can :

  • generate cash flows and sweep those cash flows into bitcoin ;

  • finance the cash flows at low cost of capital ;

  • exercise flexibility to pursue financing strategies or sell through volatility.

For these reasons MSTR holds the following advantages over other BTC investment vehicles:

  • ETFs cannot borrow competitively nor generate a yield ;

  • Bitcoin miners and ETFs do not have a non-bitcoin business value;

  • The cryptocurrency itself is not regulated for institutions.

Michael Saylor details these differences:

"We only started with $500 million in capital and we invested $250 million and figured how to acquire billions of dollars of capital to buy Bitcoin with it. An ETF cannot borrow billions of dollars at a low interest rate. As an operating company we are unique in the world as a synthetic bitcoin miner and operator."

Saylor continues, "an ETF is simply a bucket of bitcoin" in comparison. MSTR offers a non bitcoin related business value being an enterprise software company which generates profits and uses cash flows and leverage on those cash flows to buy supplemental bitcoin. As MSTR improves and increases leverage on their cash flows, supplemental bitcoin will be purchased, Saylor declares.

"An ETF management team can't lever up their ETF with long dated fixed income bonds, they can't do a convertible bond offering nor a senior secured debt offering, they are just there to hold."

Moreover, Saylor states the disadvantage that an investor creates when buying the cryptocurrency itself over MSTR as they can borrow competitively:

"if you buy 100 bitcoin on an exchange you don't have the same ability to issue publicly traded debt or convertible debt to buy bitcoin, so you're not getting that access to the competitive fixed income markets."

Final thoughts is the domain name owned by Michael Saylor, purchased a lifetime ago. This website is now used for bitcoin evangelization. Time will tell how MicroStrategy's hope in bitcoin will play out. If their hope in BTC is truly founded, then Michael Saylor and his laser-eye focus will be remembered as one of the greatest thinkers and investors of all-time. If not, then it is almost certain that MSTR's large Debt to Equity ratio will have disastrous consequences for the company and the shareholders.

“Volatility is the price you pay for it to be 10x outperforming the S&P index over a decade” - Michael Saylor

A snapshot of MSTR's financials (as of April 14th 2022 and using Q4-21' results):

  • Market Cap = $5.13 billion

  • Bitcoin Value = $5.17 billion (129,218 BTC x 40 K/BTC)

  • Revenue (trailing 12 month) = $510 million

  • EBITDA Margin (a measure of a company's operating profit as a percentage of its revenue) = 11%

  • Profit Margin = 82%

  • Total Cash (sum of the cash flow from all activities including operating, investing and financing activities) = $63.3 million

  • Total Debt = $2.24 billion

  • Debt to Equity (depicts a company's financial leverage, a measure of the degree to which a company is financing its operations through debt versus wholly owned funds) = 228%

  • Institutional Ownership = 54%

  • Float % (the shares available to be bought and sold by the general investing public) = 82%

☕️😎 If you appreciate this piece, feel free to offer an espresso, Grazie 😎☕️


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