In recent developments, Michael Saylor, the head of Strategy (previously MicroStrategy), is making headlines as he ramps up his investment in Bitcoin (BTC), solidifying his company’s position as a major player in the cryptocurrency space.
As highlighted in a recent Bloomberg report, Saylor is set to boost the yield on preferred shares, which will be pivotal for financing the company’s strategic ventures moving forward.
Current Market Dynamics
During a recent earnings call, Saylor noted that the firm is navigating through a pivotal moment. He pointed out that as the Bitcoin asset class evolves and encounters less volatility, the multiple of net asset value has experienced a downward trend.
In line with its financial maneuvers, Strategy disclosed that it would increase the yield on its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) by 25 basis points, raising it to 10.5% effective November.
On Thursday, the company announced a remarkable net income of $2.8 billion for the last quarter, primarily stemming from unrealized gains associated with its hefty cryptocurrency inventory, estimated at around $70 billion.
Nonetheless, as Bitcoin’s prices soared during the third quarter, there has been a noticeable decline in investor confidence. Despite other firms emulating Saylor’s treasury model established five years ago, investors remain cautious.
Shares of Strategy (MSTR) have seen a significant decline of approximately 45% since their peak last November, eroding the premium that once characterized the stock relative to its Bitcoin assets.
Moreover, interest in preferred shares has not met expectations, limiting Saylor’s anticipated capital raises and slowing down Bitcoin acquisitions recently.
To address these challenges, Strategy is looking to global markets for financial opportunities and is contemplating launching exchange-traded funds (ETFs) backed by these preferred shares, as CEO Phong Le discussed during the earnings call.
Saylor’s Flexible Equity Strategy
After announcing second-quarter figures, Strategy committed to avoiding any new common share issuances below 2.5 times its net asset value, aside from necessary actions for debt interest or preferred dividends.
However, Saylor suggested that he is open to leveraging favorable market conditions to execute equity sales aimed at funding further Bitcoin purchases. Despite efforts to assure investors, the subsequent issuance of more shares raised concerns and skepticism.
Analyst Gus Gala from Monness Crespi Hardt & Co. voiced apprehensions over the potential for dilution, indicating that the current trajectories of sales could lead to significant share dilution.
In the recent earnings update, Strategy affirmed that no shares were issued within its Common Stock ATM Program this month, reiterating a commitment to a careful approach in equity fundraising.
Additionally, the company adopted revised accounting standards in January that mandate the recognition of the fair value of its Bitcoin holdings in earnings reports. This update has brought about substantial profit-and-loss fluctuations over the last two quarters, including a reported loss of approximately $340 million compared to the same period last year.
Image courtesy of DALL-E, chart sourced from TradingView.com
