Digging deep into MicroStrategy: Why go all-out on Bitcoin?

Who was the first public company to buy bitcoin? In fact, it is the well-known global business intelligence software developer MicroStrategy. Soon, other companies followed suit, with Tesla and Block (formerly Square) starting to include Bitcoin on their balance sheets.

MicroStrategy was founded in 1989, when the founder Michael Saylor was only 24 years old. He co-founded the company with MIT classmates Sanju Bansal and Thomas Spahr. MicroStrategy’s main business is to provide business intelligence services (BI) , in addition to many other types of digital services such as mobile software and cloud services. Currently, Michael Saylor, chairman and CEO of MicroStrategy, holds 68.1% of the company’s total voting power and is one of Wall Street’s longest-serving executives because of his involvement in the company’s management from the very beginning.

Digging deep into MicroStrategy: Why go all-in on Bitcoin?

Image credit: Flickr

MicroStrategy is getting closer to Bitcoin

MicroStrategy has not stopped buying Bitcoin since its first entry in August 2020. Michael Saylor thinks buying bitcoin is like buying Facebook or eBay stock. He also firmly believes that holding bitcoin is better than holding fiat.

MicroStrategy’s “old business” is selling business intelligence software, and the performance of this business has been remarkably stable over the past 20 years, with annual revenue growth largely flat around 4%, in line with MSTR stock. However, that all changed when they invested in Bitcoin, which continued to rise after 2020 and only recently dropped significantly, and MicroStrategy’s Bitcoin holdings.

So, what about MSTR’s share price? Also up! The chart below shows the correlation between MSTR stock price and Bitcoin. There is no doubt that MicroStrategy is getting closer and closer to Bitcoin.

Digging deep into MicroStrategy: Why go all-in on Bitcoin?

Source: Trading view

Since the beginning of 2018, we have seen MicroStrategy’s profitability climb for three consecutive years, and its stock price has risen by a staggering 266%. But as of early July 2022, the company had not made a profit for 12 consecutive months, and the stock had fallen 66%. Revenue grew by just 3%, as the chart below shows:

Digging deep into MicroStrategy: Why go all-in on Bitcoin?

Source: Simply Wall Street

While this revenue growth makes MicroStrategy look promising, the reality isn’t quite as rosy as it seems. The reason is simple, MicroStrategy has been losing money for the past two years.

According to the data disclosed in MicroStrategy’s 2021 annual report, all of MicroStrategy’s losses in 2021 are due to the impairment of digital assets. In other words, although the software business operated by MicroStrategy did not lose money, the Bitcoin held did. As a result, their shares fell 66%. In the first quarter of 2022, MicroStrategy’s situation doesn’t look too good. The company’s total revenue last quarter was $119.3 million, down 2.9% from the same period last year; There was also a slight decrease from the previous $100.4 million.

Before buying Bitcoin, MicroStrategy’s market cap was around $900 million, but it has risen to $7.7 billion in the first quarter of 2022 – the numbers don’t lie, and since MicroStrategy started investing in Bitcoin, its market cap has risen and its share price has risen pegged to Bitcoin. Today, Bitcoin seems to have gradually become MicroStrategy’s main business, with software and business intelligence products becoming a secondary business. Although MicroStrategy has always vowed to reproduce the situation in 2020, the outside world is not optimistic, and many industry insiders predict that MicroStrategy’s profitability in the next three years will still be worrying.

Digging deep into MicroStrategy: Why go all-in on Bitcoin?

Source: MacroAxis

To buy Bitcoin, MicroStrategy has gone into debt

One thing is for sure, MicroStrategy holds a large amount of bitcoin — on June 29, MicroStrategy announced that it had purchased another 480 bitcoins for about $10 million, paying an average of $20,817 per bitcoin. As of June 28, 2022, MicroStrategy owns 129,699 bitcoins with a total value of about $3.98 billion, and the average holding price is $30,664.

In fact, in order to buy Bitcoin, MicroStrategy is heavily indebted, they currently hold three bonds, all of which need to be repaid at a specific time, and they also have bank loans.

According to CTH Group data, in the process of buying Bitcoin, MicroStrategy used only $500 million of its own funds, and the rest was $1.7 billion in debt financing (raised through unsecured senior convertible notes, the scale is of its own funds) 3.4 times, the convertible note means the creditor can exchange it for MSTR shares) as follows:

Digging deep into MicroStrategy: Why go all-in on Bitcoin?

The table above shows the three bonds and bank loans known to MicroStrategy. In late June 2022, MicroStrategy announced the purchase of $10 million worth of Bitcoin, another high-risk bet by Michael Saylor, as long as Bitcoin Keep the price high and he’ll be fine. But the problem is that Bitcoin prices show no signs of recovery, always hovering between $19,000 and $21,000.

So, this raises the question, where is MicroStrategy’s Bitcoin liquidation price?

Will MicroStrategy face liquidation risk?

According to Silvergate Bank’s loan information, MicroStrategy’s bitcoin liquidation price should be slightly higher than $21,000, and if you look at the current bitcoin price, it has indeed fallen below MicroStrategy’s “liquidation threshold” (this does not include margin calls).

However, Michael Saylor reiterated on social media that MicroStrategy has no liquidation risk, acknowledging that the company has $205 million in term loans and needs to maintain $410 million worth of collateral, but MicroStrategy has anticipated volatility and built its balance sheet In order to continue HODLing in a bear market, they can even post more collateral to avoid liquidation. It’s worth mentioning that Michael Saylor did mention that MicroStrategy could have problems if Bitcoin fell to $3,562, but that price seems to be a far cry from the current $20,000 price range.

If true, as Michael Saylor said, at least at this stage, MicroStrategy is not at risk of liquidation.

Is Bitcoin Really Smart as a Reserve Asset?

Michael Saylor is a staunch Bitcoin supporter, but as the CEO of a public company, some people think he is incompetent. Someone in the crypto community has bluntly pointed out that Michael Saylor was probably the worst investor in history, losing more money than he did during the “dot-com bubble” era. Bitcoin is the best performing asset of all time, but Michael Saylor may have lost a fortune by timing the wrong entry and using leverage to enter at the highs.

But is it really so? Is Michael Saylor really the worst investor in history? Perhaps only time will tell.

But MicroStrategy set a precedent for making cryptocurrencies a viable corporate investment, and MicroStrategy paved the way for “latecomers,” who are now more and more companies adding bitcoin to their balance sheets.

As for Michael Saylor, he needs Bitcoin to rally again, and that’s definitely going to happen, it could take a year or more, like the next “halving cycle” in May 2024, if MicroStrategy’s cash flow doesn’t change significantly, they There should be enough time to repay all bonds and loans.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/digging-deep-into-microstrategy-why-go-all-out-on-bitcoin/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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