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2024-12-09

Another hit piece ... I'm going to buy every dip. Thanks

MicroStrategy Stock: Why You Should Avoid Its Shares

Michael Saylor turned a wild idea into a $90 billion company. With Bitcoin now above $100,000, that idea could soon be tested.Photo: Illustration by Barron’s; Dreamstime (2)Over the past four years, t

MicroStrategy Stock: Why You Should Avoid Its Shares

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I'm going to buy every dip. Thanks</body></html>","htmlText":"<html><head></head><body>Another hit piece ... I'm going to buy every dip. Thanks</body></html>","text":"Another hit piece ... I'm going to buy every dip. Thanks","highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://ttm.financial/post/379664441688112","repostId":2489627772,"repostType":2,"repost":{"id":"2489627772","kind":"highlight","weMediaInfo":{"introduction":"Dow Jones publishes the world’s most trusted business news and financial information in a variety of media.","home_visible":0,"media_name":"Dow Jones","id":"106","head_image":"https://static.tigerbbs.com/150f88aa4d182df19190059f4a365e99"},"pubTimestamp":1733725200,"share":"https://www.laohu8.com/m/news/2489627772?lang=&edition=full","pubTime":"2024-12-09 14:20","market":"us","language":"en","title":"MicroStrategy Stock: Why You Should Avoid Its Shares","url":"https://stock-news.laohu8.com/highlight/detail?id=2489627772","media":"Dow Jones","summary":"Michael Saylor turned a wild idea into a $90 billion company. With Bitcoin now above $100,000, that idea could soon be tested.Photo: Illustration by Barron’s; Dreamstime (2)Over the past four years, t","content":"<html><head></head><body>Michael Saylor turned a wild idea into a $90 billion company. With Bitcoin now above $100,000, that idea could soon be tested.<img src=\"https://community-static.tradeup.com/news/a3153df05358b86cfd563b02bb02b0e4\" alt=\"Photo: Illustration by Barron’s; Dreamstime (2)\" title=\"Photo: Illustration by Barron’s; Dreamstime (2)\" tg-width=\"922\" tg-height=\"608\"/>Photo: Illustration by Barron’s; Dreamstime (2)Over the past four years, the chairman and controlling shareholder of MicroStrategy took a smallish business software company and turned it into the world’s largest corporate Bitcoin holder, with 2% of the Bitcoins outstanding—a stake now worth more than $40 billion.The company’s market value is almost 2½ times that of the company’s Bitcoins, adjusted for $7 billion of debt and a software business that could be worth about $1 billion. The gap between MicroStrategy’s market value and the value of its Bitcoin holdings is at the heart of the debate about the company, which has sold stock and convertible bonds to fund its purchases.Saylor calls MicroStrategy a “Bitcoin treasury company.” In a recent CNBC interview, he elaborated: “Our job is to bridge the traditional capital markets that want bonds, or equity, or options, and plug that into the crypto economy and use Bitcoin as a vehicle to do that.”He has been very convincing. MicroStrategy has gained a huge retail following, which has contributed to the 500% gain this year in its stock to $395. Trading lately has been heavy in both the stock and options, with options volume at times rivaling that of Nvidia and Tesla.The premium, however, looks too high, and the stock is vulnerable to a pullback, especially if the postelection run-up of 45% in Bitcoin to $101,000 begins to reverse. Investors effectively are paying nearly $240,000 for each of the company’s 402,100 Bitcoins, well above the market price. Another risk is that MicroStrategy fails to keep pace with any further gains in Bitcoin if the premium contracts. Already, the stock has dropped 25% from its Nov. 21 peak of $543 as the premium leaks out of the stock even as Bitcoin hits record highs.<img src=\"https://community-static.tradeup.com/news/e3a2e06ac36554e485ebe491d7a99ad6\" tg-width=\"965\" tg-height=\"730\"/>With institutional ownership of the stock low, aside from index funds and other, cheaper options like exchange-traded funds available for those who want access to the cryptocurrency, the success of the company’s strategy hinges on its ability to find buyers for its stock at a large premium to its Bitcoin holdings. “Michael Saylor has used his evangelical qualities to get a cult following that will buy the stock at two to three times the value of its Bitcoin holdings,” says Julian Klymochko, the CEO of Accelerate, a Canadian investment firm. “True Bitcoin believers own the digital asset and self-custody it.”MicroStrategy wasn’t always a crypto depository. The company had been selling business analytics software. But in 2020, Saylor started buying Bitcoin. Saylor’s view is that Bitcoin is the best commodity with capped issuance at 21 million and nearly all of that amount, about 20 million, now outstanding. That means only 5% more will be mined. Saylor believes that Bitcoin is going much higher. He sees 50% annual returns for the cryptocurrency.The huge premium for the stock is a 2024 phenomenon. From 2022 through the end of 2023, MicroStrategy mostly traded at parity to the value of its Bitcoin and started this year at a premium of roughly 30%. Donald Trump’s presidential win energized Bitcoin, given his crypto-friendly views. Trump’s move to name Paul Atkins, who is also positive on crypto, as the new chair of the Securities and Exchange Commission helped push Bitcoin above $100,000 for the first time this past week.MicroStrategy has flipped the script on the typical corporate policy on stock issuance: Don’t do it unless necessary to avoid diluting existing shareholders. The company has been on an equity issuance binge since the end of October, when it unveiled a plan to issue $21 billion of stock and $21 billion of bonds through 2027 and use the proceeds to purchase Bitcoin. MicroStrategy has sold about $10.5 billion of equity and issued a $3 billion convertible bond, putting it on pace to achieve that goal as early as next year.MicroStrategy has raised its Bitcoin holdings by 60% since Sept. 30, which has lifted its average cost to $58,000 from $39,000, as it buys at higher levels. Investor Jim Chanos pointed out on X that the company bought only a small amount of Bitcoin in 2022 when the price was low—fewer than 9,000 Bitcoins—and a lot now with prices at record levels.<img src=\"https://community-static.tradeup.com/news/5cbde58bc5b219693d92b97e32c4050b\" tg-width=\"862\" tg-height=\"739\"/>Saylor addressed this in a recent Barron’s interview: “Conventional wisdom is, when you announce a $21 billion equity raise, people are worried that the market will think you’re going to dilute them, but in fact, our plan is to accrete them.” MicroStrategy has come up with a measure of the value accretion from this approach called Bitcoin “yield.” It isn’t a yield in the conventional sense but seeks to measure the change in the amount of Bitcoin per share held by the company. That “yield” has been over 60% as Bitcoin per 1,000 shares has gone to 1.5 from 0.9 this year.The company also highlights as a positive the high volatility of its stock, with Saylor saying MicroStrategy is about 10 times as volatile as the S&amp;P 500 index. That volatility has allowed the company to supplement its equity sales with issuance of convertible debt at attractive prices, since bond buyers like volatile stocks. The latest deal carried an interest rate of zero and a high conversion price of $672, a 55% premium to the market price at the time.Adding debt, however, carries risk, which was the case in 2022 when Bitcoin traded below $20,000, and investors worried about MicroStrategy’s ability to repay its debt, which then traded below 50 cents on the dollar.Saylor also talks about the value creation from buying Bitcoin using stock and bond sales, which he calls Treasury operations. Issuing lots of stock is the right approach if investors will buy your shares at a large premium to the value of your assets. The company offers its equity through what’s known as at-the-market sales directly to investors through a nine-member underwriting group. According to Bloomberg, MicroStrategy has analyst coverage from eight firms, all members of that group, and all eight have Buy ratings or the equivalent. So far, analysts have been right in their optimism.Accelerate’s Klymochko thinks analysts and investors are going to extremes to justify the MicroStrategy valuation, calling it “mental jujitsu to justify buying the shares at such an inflated price and in such a convoluted way through a holding company that is basically a closed-end fund.” Closed-end funds raise money by issuing shares and using the proceeds to buy financial assets, and usually trade at a discount to their net asset value, not a premium. Benchmark analyst Mark Palmer recently wrote in a client note that “detractors” have questioned whether the stock should trade at a premium to the value of its Bitcoin holding, “much less almost three times premium” that they then commanded. His response: Such a critique gives “short shrift” to the shareholder value that the company “is creating through its treasury operations, i.e., its repeated tapping of the capital markets to raise proceeds to fuel the addition of Bitcoin to its sizable holdings.” He has a Buy rating and a $650 price target on the stock and values the Treasury operations in his model at over $100 billion.Adding to the risk is the presence of two leveraged exchange-traded funds on MicroStrategy with more than $4 billion in total assets. They are the Defiance Daily Target 2X Long MSTR (ticker: MSTX) andT-Rex 2X Long MSTR Daily Target (MSTU). If MicroStrategy stock drops and investors pull out of these ETFs, they would have to unwind their holdings.It also seems unlikely that MicroStrategy will be added to the S&amp;P 500, despite its large size, because it’s essentially a Bitcoin repository rather than a business with recurring earnings. The company could be added to the Nasdaq 100 index at the coming annual reconstitution that will be announced on Dec. 13.Given these dangers, investors who are partial to Bitcoin should consider low-fee ETFs like the $50 billion iShares Bitcoin Trust ((ticker: IBIT), which has an annual fee of 0.25%.MicroStrategy is a cult stock with a nearly $100 billion valuation supported by about $40 billion in assets. That may not end well for investors.</body></html>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>MicroStrategy Stock: Why You Should Avoid Its Shares</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMicroStrategy Stock: Why You Should Avoid Its Shares\n</h2>\n\n<h4 class=\"meta\">\n\n\n<div class=\"head\" \">\n\n\n<div class=\"h-thumb\" style=\"background-image:url(https://static.tigerbbs.com/150f88aa4d182df19190059f4a365e99);background-size:cover;\"></div>\n\n<div class=\"h-content\">\nDow Jones \n2024-12-09 14:20\n</div>\n\n</div>\n\n\n</h4>\n\n</header>\n<article>\n<html><head></head><body>Michael Saylor turned a wild idea into a $90 billion company. With Bitcoin now above $100,000, that idea could soon be tested.<img src=\"https://community-static.tradeup.com/news/a3153df05358b86cfd563b02bb02b0e4\" alt=\"Photo: Illustration by Barron’s; Dreamstime (2)\" title=\"Photo: Illustration by Barron’s; Dreamstime (2)\" tg-width=\"922\" tg-height=\"608\"/>Photo: Illustration by Barron’s; Dreamstime (2)Over the past four years, the chairman and controlling shareholder of MicroStrategy took a smallish business software company and turned it into the world’s largest corporate Bitcoin holder, with 2% of the Bitcoins outstanding—a stake now worth more than $40 billion.The company’s market value is almost 2½ times that of the company’s Bitcoins, adjusted for $7 billion of debt and a software business that could be worth about $1 billion. The gap between MicroStrategy’s market value and the value of its Bitcoin holdings is at the heart of the debate about the company, which has sold stock and convertible bonds to fund its purchases.Saylor calls MicroStrategy a “Bitcoin treasury company.” In a recent CNBC interview, he elaborated: “Our job is to bridge the traditional capital markets that want bonds, or equity, or options, and plug that into the crypto economy and use Bitcoin as a vehicle to do that.”He has been very convincing. MicroStrategy has gained a huge retail following, which has contributed to the 500% gain this year in its stock to $395. Trading lately has been heavy in both the stock and options, with options volume at times rivaling that of Nvidia and Tesla.The premium, however, looks too high, and the stock is vulnerable to a pullback, especially if the postelection run-up of 45% in Bitcoin to $101,000 begins to reverse. Investors effectively are paying nearly $240,000 for each of the company’s 402,100 Bitcoins, well above the market price. Another risk is that MicroStrategy fails to keep pace with any further gains in Bitcoin if the premium contracts. Already, the stock has dropped 25% from its Nov. 21 peak of $543 as the premium leaks out of the stock even as Bitcoin hits record highs.<img src=\"https://community-static.tradeup.com/news/e3a2e06ac36554e485ebe491d7a99ad6\" tg-width=\"965\" tg-height=\"730\"/>With institutional ownership of the stock low, aside from index funds and other, cheaper options like exchange-traded funds available for those who want access to the cryptocurrency, the success of the company’s strategy hinges on its ability to find buyers for its stock at a large premium to its Bitcoin holdings. “Michael Saylor has used his evangelical qualities to get a cult following that will buy the stock at two to three times the value of its Bitcoin holdings,” says Julian Klymochko, the CEO of Accelerate, a Canadian investment firm. “True Bitcoin believers own the digital asset and self-custody it.”MicroStrategy wasn’t always a crypto depository. The company had been selling business analytics software. But in 2020, Saylor started buying Bitcoin. Saylor’s view is that Bitcoin is the best commodity with capped issuance at 21 million and nearly all of that amount, about 20 million, now outstanding. That means only 5% more will be mined. Saylor believes that Bitcoin is going much higher. He sees 50% annual returns for the cryptocurrency.The huge premium for the stock is a 2024 phenomenon. From 2022 through the end of 2023, MicroStrategy mostly traded at parity to the value of its Bitcoin and started this year at a premium of roughly 30%. Donald Trump’s presidential win energized Bitcoin, given his crypto-friendly views. Trump’s move to name Paul Atkins, who is also positive on crypto, as the new chair of the Securities and Exchange Commission helped push Bitcoin above $100,000 for the first time this past week.MicroStrategy has flipped the script on the typical corporate policy on stock issuance: Don’t do it unless necessary to avoid diluting existing shareholders. The company has been on an equity issuance binge since the end of October, when it unveiled a plan to issue $21 billion of stock and $21 billion of bonds through 2027 and use the proceeds to purchase Bitcoin. MicroStrategy has sold about $10.5 billion of equity and issued a $3 billion convertible bond, putting it on pace to achieve that goal as early as next year.MicroStrategy has raised its Bitcoin holdings by 60% since Sept. 30, which has lifted its average cost to $58,000 from $39,000, as it buys at higher levels. Investor Jim Chanos pointed out on X that the company bought only a small amount of Bitcoin in 2022 when the price was low—fewer than 9,000 Bitcoins—and a lot now with prices at record levels.<img src=\"https://community-static.tradeup.com/news/5cbde58bc5b219693d92b97e32c4050b\" tg-width=\"862\" tg-height=\"739\"/>Saylor addressed this in a recent Barron’s interview: “Conventional wisdom is, when you announce a $21 billion equity raise, people are worried that the market will think you’re going to dilute them, but in fact, our plan is to accrete them.” MicroStrategy has come up with a measure of the value accretion from this approach called Bitcoin “yield.” It isn’t a yield in the conventional sense but seeks to measure the change in the amount of Bitcoin per share held by the company. That “yield” has been over 60% as Bitcoin per 1,000 shares has gone to 1.5 from 0.9 this year.The company also highlights as a positive the high volatility of its stock, with Saylor saying MicroStrategy is about 10 times as volatile as the S&amp;P 500 index. That volatility has allowed the company to supplement its equity sales with issuance of convertible debt at attractive prices, since bond buyers like volatile stocks. The latest deal carried an interest rate of zero and a high conversion price of $672, a 55% premium to the market price at the time.Adding debt, however, carries risk, which was the case in 2022 when Bitcoin traded below $20,000, and investors worried about MicroStrategy’s ability to repay its debt, which then traded below 50 cents on the dollar.Saylor also talks about the value creation from buying Bitcoin using stock and bond sales, which he calls Treasury operations. Issuing lots of stock is the right approach if investors will buy your shares at a large premium to the value of your assets. The company offers its equity through what’s known as at-the-market sales directly to investors through a nine-member underwriting group. According to Bloomberg, MicroStrategy has analyst coverage from eight firms, all members of that group, and all eight have Buy ratings or the equivalent. So far, analysts have been right in their optimism.Accelerate’s Klymochko thinks analysts and investors are going to extremes to justify the MicroStrategy valuation, calling it “mental jujitsu to justify buying the shares at such an inflated price and in such a convoluted way through a holding company that is basically a closed-end fund.” Closed-end funds raise money by issuing shares and using the proceeds to buy financial assets, and usually trade at a discount to their net asset value, not a premium. Benchmark analyst Mark Palmer recently wrote in a client note that “detractors” have questioned whether the stock should trade at a premium to the value of its Bitcoin holding, “much less almost three times premium” that they then commanded. His response: Such a critique gives “short shrift” to the shareholder value that the company “is creating through its treasury operations, i.e., its repeated tapping of the capital markets to raise proceeds to fuel the addition of Bitcoin to its sizable holdings.” He has a Buy rating and a $650 price target on the stock and values the Treasury operations in his model at over $100 billion.Adding to the risk is the presence of two leveraged exchange-traded funds on MicroStrategy with more than $4 billion in total assets. They are the Defiance Daily Target 2X Long MSTR (ticker: MSTX) andT-Rex 2X Long MSTR Daily Target (MSTU). If MicroStrategy stock drops and investors pull out of these ETFs, they would have to unwind their holdings.It also seems unlikely that MicroStrategy will be added to the S&amp;P 500, despite its large size, because it’s essentially a Bitcoin repository rather than a business with recurring earnings. The company could be added to the Nasdaq 100 index at the coming annual reconstitution that will be announced on Dec. 13.Given these dangers, investors who are partial to Bitcoin should consider low-fee ETFs like the $50 billion iShares Bitcoin Trust ((ticker: IBIT), which has an annual fee of 0.25%.MicroStrategy is a cult stock with a nearly $100 billion valuation supported by about $40 billion in assets. That may not end well for investors.</body></html>\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4588":"碎股","BK4595":"比特币概念","BK4023":"应用软件","MSTR":"MicroStrategy","BK4516":"特朗普概念","BK4596":"哈里斯概念","BK4600":"加密货币概念","MSTX":"Defiance Daily Target 2X Long MSTR ETF","BK4594":"比特币ETF概念","MSTU":"T-Rex 2X Long MSTR Daily Target ETF","BK4601":"加密货币现货ETF","BK4585":"ETF&股票定投概念","BK1611":"加密货币现货ETF"},"source_url":"https://dowjonesnews.com/newdjn/logon.aspx?AL=N","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"2489627772","content_text":"Michael Saylor turned a wild idea into a $90 billion company. With Bitcoin now above $100,000, that idea could soon be tested.Photo: Illustration by Barron’s; Dreamstime (2)Over the past four years, the chairman and controlling shareholder of MicroStrategy took a smallish business software company and turned it into the world’s largest corporate Bitcoin holder, with 2% of the Bitcoins outstanding—a stake now worth more than $40 billion.The company’s market value is almost 2½ times that of the company’s Bitcoins, adjusted for $7 billion of debt and a software business that could be worth about $1 billion. The gap between MicroStrategy’s market value and the value of its Bitcoin holdings is at the heart of the debate about the company, which has sold stock and convertible bonds to fund its purchases.Saylor calls MicroStrategy a “Bitcoin treasury company.” In a recent CNBC interview, he elaborated: “Our job is to bridge the traditional capital markets that want bonds, or equity, or options, and plug that into the crypto economy and use Bitcoin as a vehicle to do that.”He has been very convincing. MicroStrategy has gained a huge retail following, which has contributed to the 500% gain this year in its stock to $395. Trading lately has been heavy in both the stock and options, with options volume at times rivaling that of Nvidia and Tesla.The premium, however, looks too high, and the stock is vulnerable to a pullback, especially if the postelection run-up of 45% in Bitcoin to $101,000 begins to reverse. Investors effectively are paying nearly $240,000 for each of the company’s 402,100 Bitcoins, well above the market price. Another risk is that MicroStrategy fails to keep pace with any further gains in Bitcoin if the premium contracts. Already, the stock has dropped 25% from its Nov. 21 peak of $543 as the premium leaks out of the stock even as Bitcoin hits record highs.With institutional ownership of the stock low, aside from index funds and other, cheaper options like exchange-traded funds available for those who want access to the cryptocurrency, the success of the company’s strategy hinges on its ability to find buyers for its stock at a large premium to its Bitcoin holdings. “Michael Saylor has used his evangelical qualities to get a cult following that will buy the stock at two to three times the value of its Bitcoin holdings,” says Julian Klymochko, the CEO of Accelerate, a Canadian investment firm. “True Bitcoin believers own the digital asset and self-custody it.”MicroStrategy wasn’t always a crypto depository. The company had been selling business analytics software. But in 2020, Saylor started buying Bitcoin. Saylor’s view is that Bitcoin is the best commodity with capped issuance at 21 million and nearly all of that amount, about 20 million, now outstanding. That means only 5% more will be mined. Saylor believes that Bitcoin is going much higher. He sees 50% annual returns for the cryptocurrency.The huge premium for the stock is a 2024 phenomenon. From 2022 through the end of 2023, MicroStrategy mostly traded at parity to the value of its Bitcoin and started this year at a premium of roughly 30%. Donald Trump’s presidential win energized Bitcoin, given his crypto-friendly views. Trump’s move to name Paul Atkins, who is also positive on crypto, as the new chair of the Securities and Exchange Commission helped push Bitcoin above $100,000 for the first time this past week.MicroStrategy has flipped the script on the typical corporate policy on stock issuance: Don’t do it unless necessary to avoid diluting existing shareholders. The company has been on an equity issuance binge since the end of October, when it unveiled a plan to issue $21 billion of stock and $21 billion of bonds through 2027 and use the proceeds to purchase Bitcoin. MicroStrategy has sold about $10.5 billion of equity and issued a $3 billion convertible bond, putting it on pace to achieve that goal as early as next year.MicroStrategy has raised its Bitcoin holdings by 60% since Sept. 30, which has lifted its average cost to $58,000 from $39,000, as it buys at higher levels. Investor Jim Chanos pointed out on X that the company bought only a small amount of Bitcoin in 2022 when the price was low—fewer than 9,000 Bitcoins—and a lot now with prices at record levels.Saylor addressed this in a recent Barron’s interview: “Conventional wisdom is, when you announce a $21 billion equity raise, people are worried that the market will think you’re going to dilute them, but in fact, our plan is to accrete them.” MicroStrategy has come up with a measure of the value accretion from this approach called Bitcoin “yield.” It isn’t a yield in the conventional sense but seeks to measure the change in the amount of Bitcoin per share held by the company. That “yield” has been over 60% as Bitcoin per 1,000 shares has gone to 1.5 from 0.9 this year.The company also highlights as a positive the high volatility of its stock, with Saylor saying MicroStrategy is about 10 times as volatile as the S&P 500 index. That volatility has allowed the company to supplement its equity sales with issuance of convertible debt at attractive prices, since bond buyers like volatile stocks. The latest deal carried an interest rate of zero and a high conversion price of $672, a 55% premium to the market price at the time.Adding debt, however, carries risk, which was the case in 2022 when Bitcoin traded below $20,000, and investors worried about MicroStrategy’s ability to repay its debt, which then traded below 50 cents on the dollar.Saylor also talks about the value creation from buying Bitcoin using stock and bond sales, which he calls Treasury operations. Issuing lots of stock is the right approach if investors will buy your shares at a large premium to the value of your assets. The company offers its equity through what’s known as at-the-market sales directly to investors through a nine-member underwriting group. According to Bloomberg, MicroStrategy has analyst coverage from eight firms, all members of that group, and all eight have Buy ratings or the equivalent. So far, analysts have been right in their optimism.Accelerate’s Klymochko thinks analysts and investors are going to extremes to justify the MicroStrategy valuation, calling it “mental jujitsu to justify buying the shares at such an inflated price and in such a convoluted way through a holding company that is basically a closed-end fund.” Closed-end funds raise money by issuing shares and using the proceeds to buy financial assets, and usually trade at a discount to their net asset value, not a premium. Benchmark analyst Mark Palmer recently wrote in a client note that “detractors” have questioned whether the stock should trade at a premium to the value of its Bitcoin holding, “much less almost three times premium” that they then commanded. His response: Such a critique gives “short shrift” to the shareholder value that the company “is creating through its treasury operations, i.e., its repeated tapping of the capital markets to raise proceeds to fuel the addition of Bitcoin to its sizable holdings.” He has a Buy rating and a $650 price target on the stock and values the Treasury operations in his model at over $100 billion.Adding to the risk is the presence of two leveraged exchange-traded funds on MicroStrategy with more than $4 billion in total assets. They are the Defiance Daily Target 2X Long MSTR (ticker: MSTX) andT-Rex 2X Long MSTR Daily Target (MSTU). If MicroStrategy stock drops and investors pull out of these ETFs, they would have to unwind their holdings.It also seems unlikely that MicroStrategy will be added to the S&P 500, despite its large size, because it’s essentially a Bitcoin repository rather than a business with recurring earnings. The company could be added to the Nasdaq 100 index at the coming annual reconstitution that will be announced on Dec. 13.Given these dangers, investors who are partial to Bitcoin should consider low-fee ETFs like the $50 billion iShares Bitcoin Trust ((ticker: IBIT), which has an annual fee of 0.25%.MicroStrategy is a cult stock with a nearly $100 billion valuation supported by about $40 billion in assets. That may not end well for investors.","news_type":1},"isVote":1,"tweetType":1,"viewCount":143,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":46,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}