MicroStrategy is buying more Bitcoins, with shareholders footing the bill

MicroStrategy (MSTR 0.39%) is doubling Bitcoin (BTC 1.13%) of new investment. This time, the business intelligence firm is asking shareholders to foot the bill.

What is MicroStrategy doing?

MicroStrategy revealed a stock offering on the public market in a couple of regulatory documents released after last Friday’s closing bell. The company wants to raise up to $ 500 million from this stock sale, which could happen in a single lot or series of transactions over time. Realistically, MicroStrategy and its banking partners want to get this process done quickly, perhaps as soon as Monday, September 12th. Future documents will tell this story.

The resulting cash flow of $ 500 million (minus a 2% bankers fee) is technically intended for “general business purposes”, including but not limited to buying more Bitcoin. However, you should know that MicroStrategy has recently raised money in many forms with the express purpose of buying Bitcoin. There is no reason to believe that this stock sale will serve any other purpose.

What does this move mean for MicroStrategy investors?

This stock sale is a big deal.

Issuing enough shares to raise $ 500 million on the open stock market is no small potato when the stock’s total market value was $ 2.96 billion when these documents were filed. The stock count could rise by around 17%, based on Friday’s share prices. The market value of each share will be diluted by the same amount, as the same market value is divided into a larger number of smaller slices.

Huge stock sales tend to weigh on stock prices as investors adjust to the dilution of incoming stock. However, MicroStrategy’s shares are only trading 2% lower at the time of writing.

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The scope of this investment

The modest drop in the share price suggests that investors see great value in MicroStrategy’s binge-buying of Bitcoin. It is not a surprise. Share prices made similar moves when the company raised $ 205 million from a term loan in March 2022. A $ 500 million debt offer in June 2021 was met by a five-day increase of 25% in MicroStrategy stock chart. In both cases, the proceeds went directly to the purchase of more Bitcoins.

Therefore, MicroStrategy’s investors seem to agree with the company’s goal of grabbing as much Bitcoin as it can handle. The term loan and senior securities required lenders to take the risk of Bitcoin’s unpredictable prices. This time around, the company is asking shareholders to take responsibility for yet another Bitcoin madness.

MicroStrategy’s balance sheet contained 129,677 Bitcoins on September 8, according to stock sale documents. It is worth about $ 3.78 billion at current Bitcoin prices, compared to $ 2.4 billion in long-term debt. Actual cash reserves hover around $ 70 million, as the company continues to invest every spare penny in more Bitcoin. The proposed stock sale could bring about 22,500 Bitcoins at these prices, increasing the stock of digital assets by 17%.

How does MicroStrategy’s Bitcoin philosophy work?

Buying Bitcoin is a declared business strategy, along with the growth of the business analytics software business. President Michael Saylor sees Bitcoin as an effective long-term hedge against inflation and the digital currency is also expected to gain value as the cryptocurrency market matures.

“The current wave of cryptocurrency rationalization, regulation and innovation is healthy for this industry in the medium to long term,” said Saylor in the August second quarter earnings announcement. “And we expect Bitcoin to be the main beneficiary of all these trends.”

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If Bitcoin ends up gaining long-term value, MicroStrategy will see a strong return on these digital investments. 2022 has been a painful year for cryptocurrency investors, unless you are an active buyer and want to raise more Bitcoins at low prices. If Michael Saylor’s Bitcoin strategy works as planned, 2022 will be remembered as a wealthy year. If not, it will go down in history as a costly mistake.

So you can see MicroStrategy as a direct investment in Bitcoin, amplified by the company’s ability to tap into many different financial resources to grow its Bitcoin reserves. This time around, it’s a stock sale and shareholders are giving that idea a big thumbs up.

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