Interpretation of MSTR's latest financial report: Currently holding more than 250,000 BTC; will raise $42 billion in three years to increase holdings

Original title: "No production, only hoarding coins": MSTR's latest financial report is released, revealing MicroStrategy's capital thickening and high premium valuation model"

Original author: Alvis, MarsBit

Historically, whenever a traditional industry reaches its peak, there are often some extremely groundbreaking companies that find unique "production methods" in the cracks of the market and rely on unique strategies to attract capital. These companies rarely "produce" actual things, but concentrate their resources on a core asset - like Shell Oil Company in the past maintained its valuation through oil reserves, and gold mining companies relied on gold mining and reserves to dominate prices. And this morning, MicroStrategy's financial report was released, and people once again saw such a company: it is not known for "production", but with its huge investment in Bitcoin, it broke the traditional valuation rules and became one of the world's largest and most unique Bitcoin holders.

From a software company to a Bitcoin whale: MicroStrategy's transformation path

MicroStrategy (MicroStrategy), stock code MSTR,This company originally relied on business intelligence software to build its kingdom, but its founder Michael Saylor stepped on the accelerator in 2020 and drove directly onto the "fast lane" of Bitcoin. From this year on, Saylor no longer let the company stay in traditional "production", but saw the potential of Bitcoin as a core asset, and began to exchange the company's reserves for Bitcoin little by little, and even bet on his own wealth, step by step to build MicroStrategy into a "coin hoarding bank" for Bitcoin. In Saylor's eyes, Bitcoin is the gold of the digital world and the anchor of the future of global finance. Some people think he is crazy, and some call him a "fanatic missionary" of Bitcoin, but he firmly believes that he is winning the "new gold standard" for the company.

Saylor does not intend to follow the old path. He positions MicroStrategy more like "air express delivery": Compared with the "ground logistics" of traditional ETFs, MicroStrategy directly purchases Bitcoin through financing through bond issuance, lending, and equity issuance, which is flexible, efficient, and can also chase the rise of the Bitcoin market. This makes MicroStrategy not only a stock code, but also a "express target" in the Bitcoin market, and the company's market value is directly linked to the rise and fall of Bitcoin. Saylor's operation has caused considerable controversy. Well-known investor Peter Schiff even joked on the social platform X that "the company does not produce any products, but has achieved a super high market value by hoarding Bitcoin." He pointed out that MicroStrategy's market value has exceeded most gold mining companies and is second only to Newmont.

In response, Saylor's response was simple: "Bitcoin is our future reserve asset." Driven by this firm belief, MicroStrategy has accumulated more than 250,000 bitcoins and plans to raise $42 billion in the next three years to continue to increase its holdings. MicroStrategy's "production" method is not traditional material manufacturing, but building a new financial system around Bitcoin's "infrastructure."

Some people say that Saylor is gambling, but perhaps, this is not only a bet, but a belief. He took an adventure to take an alternative path, making MicroStrategy an alternative target in the financial market. As he said, "We don't produce, we just 'hoard coins.'"

Interpretation of MSTR's latest financial report: capital thickening and Bitcoin reserves are further increased

1. Overall overview of the financial report and financing plan

The overall financial report released by MicroStrategy this time shows a positive outlook. The company plans to raise $42 billion in the next three years to continue to increase its holdings of Bitcoin, and has completed the repurchase of previously pledged Bitcoin. As of the date of the financial report, MicroStrategy holds a total of 252,220 Bitcoins.

Since the end of the second quarter of 2024, the company has purchased 25,889 additional Bitcoins, with a total cost of approximately $1.6 billion and an average price of $60,839 per Bitcoin. The company's total market value is currently approximately $18 billion, and the cumulative cost of purchasing Bitcoin is $9.9 billion, with an average price of approximately $39,266 per coin. The company also raised $1.1 billion through the sale of Class A common stock and another $1.01 billion through the issuance of convertible bonds due in 2028, while repaying $500 million in senior secured notes and releasing the mortgage of all Bitcoin assets. This move to release the mortgage significantly enhances the company's financial flexibility and reduces its risk in extreme market conditions.

2. Cash reserves and future financing goals

MicroStrategy currently holds $836 million in cash, providing stable funding support for further purchases of Bitcoin in the future. The company also released a phased financing target: $10 billion in 2025, $14 billion in 2026, and $18 billion in 2027, for a total of $42 billion. CEO Michael Saylor's plan aims to strengthen the company's core asset reserves by gradually increasing its holdings of Bitcoin, which is undoubtedly seen by the market as positive rather than negative news.

3. Market value and book value

As of October 29, 2024, MicroStrategy's market value is approximately $18 billion and its book value is $6.9 billion, which has deducted $3 billion in accumulated impairment losses. The reason for the impairment is not that MicroStrategy sold Bitcoin, but based on book adjustments under current accounting standards. According to accounting regulations, if the market price of Bitcoin falls in a certain quarter, the company must lower the book value of these assets and record an impairment loss. However, even if the price rises later, the book value will not automatically recover, and the appreciation can only be reflected when it is sold. If future changes in accounting standards (such as the approval of FASB's fair value measurement) are implemented, this problem is expected to be improved.

4. BTC’s flexibility as a core asset

As a core asset, Bitcoin gives MicroStrategy greater capital operation flexibility than spot ETFs. The company compares its Bitcoin reserve operations to oil reserves of oil companies. Just as oil companies handle unrefined and refined products (such as gasoline, diesel, and aviation fuel), MicroStrategy also regards Bitcoin reserves as a capital preservation tool. Through this core asset, the company is able to improve productivity and implement innovative financial strategies.

5. MicroStrategy’s Bitcoin Holding Principles

MicroStrategy has established eight core principles for Bitcoin holdings, reflecting its long-term investment strategy and market orientation:

· Continue to purchase and hold Bitcoin, focusing on long-term returns;

· Prioritize the long-term value of MicroStrategy common stock;

· Maintain transparency and consistency with investors;

· Use smart leverage to ensure that the company outperforms the Bitcoin market;

· Adapt to market dynamics quickly and responsibly and continue to grow;

· Issue innovative Bitcoin-backed fixed income securities;

· Maintain a healthy and strong balance sheet;

· Promote Bitcoin to become a global reserve asset.

6. The difference between MicroStrategy and Bitcoin spot ETF

Compared with the Bitcoin spot ETF, MicroStrategy is unique in its financing method. ETF investors need to actively purchase ETF shares, while MicroStrategy raises funds through multiple channels such as equity, unsecured or secured debt, convertible bonds and structured notes, which are used to directly increase Bitcoin holdings. This "stock sale financing" model allows the company to actively raise funds to achieve long-term strategic holdings of Bitcoin.

The cycle of capital and high premium rates: MicroStrategy's valuation code

The higher the premium rate, the more suitable it is for large-scale financing

MicroStrategy's valuation model relies on the market value premium rate, and increases Bitcoin (BTC) holdings through equity dilution financing, increasing BTC holdings per share, thereby pushing up the company's market value. Here is a detailed analysis of this model:

Simplified analysis of premium rate and thickening effect

Assuming the price of Bitcoin is $72,000, MicroStrategy holds 252,220 BTC, with a total holding value of approximately $18.16 billion. With the current company market value of $48 billion, MicroStrategy's market value is 2.64 times the total value of its Bitcoin holdings, which translates to a current premium rate of 164%.

Assuming the company's current total share capital is 10,000 shares, the corresponding BTC holdings per share are approximately 25.22.

If MicroStrategy plans to raise $10 billion through additional issuance, the total share capital after the additional issuance will become 12,083 shares (calculation method: divide the financing amount of $10 billion by the current market value of $48 billion, the result is 0.2083 times, that is, the share capital will be increased by 20.83%, and the total share capital will become 10,000 shares multiplied by 1.2083, which is approximately equal to 12,083 shares). In this case, the company can use $10 billion to purchase approximately 138,889 bitcoins at a price of $72,000, increasing the total bitcoin holdings to 391,109. In this way, the BTC holdings per share will also increase to 32.37 (dividing 391,109 bitcoins by 12,083 shares), an increase of about 28%.

Similarly, if the planned financing is $42 billion

Further assuming that MicroStrategy issues 87.5% of its share capital, that is, it raises $42 billion by issuing 8,750 shares, the total share capital after the issuance will increase to 18,750 shares (calculation method: multiply 10,000 shares by 1.875 times). If Bitcoin is purchased at a price of $72,000, the company can purchase approximately 583,333 BTC, bringing the total holding to 835,553 Bitcoins. At this time, the BTC holding per share will increase to 44.23 (i.e. 835,553 Bitcoins divided by 18,750 shares), an increase of approximately 75% compared to the previous 25.22.

If the thickening effect is realized within three years, the average thickening is 25% per year.

Of course, when the final reinvestment is made, the price of Bitcoin will change, which may be higher or lower, but this will not change the thickening conclusion. Under the extremely high premium rate of MicroStrategy (currently fluctuating around 180%-200%), the company should maximize the financing by using the premium rate as much as possible. Therefore, although CEO Michael Saylor's $42 billion financing plan caused market panic at first, market sentiment soon recovered, indicating that the company had a clear understanding of the current model. This is a rational decision that maximizes shareholder equity.

MicroStrategy's advantages and the logic behind the high premium rate

Many investors may wonder why the market is willing to buy MicroStrategy's ATM or convertible bonds at a high premium instead of choosing to buy Bitcoin ETFs directly? This involves several unique advantages of MicroStrategy:

Continuous thickening of earnings

By continuously raising funds to increase BTC reserves, MicroStrategy has achieved an annualized 6%-10% earnings growth, and has achieved an annualized growth of 17% so far in 2024. Under the current high premium financing model, the annualized growth is expected to reach more than 15%. Calculated at a valuation of 10x to 15x, MicroStrategy's premium rate corresponds to a valuation of 150%-225%.

Volatility and market bridge

Michael Saylor believes that MicroStrategy acts as a bridge between the traditional capital market and the Bitcoin market. The current market value of Bitcoin is about 1.4 trillion US dollars, and the penetration rate is relatively low. If the penetration rate increases, even if only 1% of the global $300 trillion bond market is allocated to Bitcoin, it will bring MicroStrategy about $3 trillion in potential incremental funds. In addition, the convertible bonds issued by the company not only provide certain downside protection, but also provide potential options for Bitcoin price increases.

Conclusion: The self-reinforcing effect of high premium rates in a bull market

In a bull market environment, MicroStrategy's valuation model and high premium financing model form a self-reinforcing positive cycle. The higher the premium rate, the greater the company's financing amount, thereby increasing the BTC reserves per share and further pushing up the company's market value. This market effect is like a snowball, especially when the price of Bitcoin is expected to rise to the $90,000-100,000 range, MicroStrategy may be able to continue to accelerate under the escort of the high premium rate.

Michael Saylor's bet and the market's response seem to foreshadow a subtle game between traditional finance and digital assets. In this dual contest between capital and technology, will MicroStrategy achieve a financial revolution or just be a flash in the pan? What we are witnessing may be a harbinger of future financial change.

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