MSTR - MicroStrategy Incorporated

[whistlerbumps]

Kind of surprised there isn't a MSTR board here already so I'll start one. 

 

Seems like an interesting set up.  Their MicroStrategy 2019 release appears to be very good and has gained traction in the market (as opposed to MicroStrategy 10 which was a disaster).  With strong upgrade performance and the sale of new products like HyperIntelligence, it appears that MSTR is poised to start growing sales for the first time in a while.  If that happens, then the current valuation of <2x sales for a sticky, high GPM software product will seem quite absurd. 

 

Seems like mgmt agrees as they bought back >10% of the shares in Q4 18 and Q1 19. 

 

Anyone else have any thoughts here?

[peterHK]

I owned it and sold, made a very small gain.

 

The risks here are that Saylor is a tinkerer, and Phong is SO stretched in terms of his duties, especially since the head of sales left. The exec leaving was sort of a red flag to me as he's supposed to be driving the top line here, which is what the thesis really rests on.

[OracleofCarolina]

https://decrypt.co/42388/how-microstrategy-ceo-went-from-bitcoin-basher-to-425m-buy

 

I know mentioning bitcoin aka rat poison squared is not cool.

 

Micheal Saylor makes a compelling case for a small allocation to bitcoin and as CEO of MSTR, put some of the companies cash in bitcoin.

[OracleofCarolina]

Saylor really is going in with Bitcoin for MSTR

 

On December 4, 2020, MicroStrategy Incorporated (the “Company”) announced that it had purchased approximately 2,574 bitcoins for $50.0 million in cash in accordance with its Treasury Reserve Policy, at an average price of approximately $19,427 per bitcoin. As of December 4, 2020, the Company holds approximately 40,824 bitcoins that were acquired at an aggregate purchase price of $475.0 million, inclusive of fees and expenses.

[Gregmal]

Issuing convertible notes to buy Bitcoin LOL. Frankly, outside of laughing, I am speechless. WTF is going on?

[Xerxes]

I listened to numerous podcast/interviews that the CEO has been doing in the past few months since he converted his B/S to bitcoin. I found his discussion to be interesting. Below is a more recent +2 hours podcast, where for the first hour he talks about how current gauge for inflation is off, and how inflation is to be viewed differently by different people.

 

The convertible debt that he plowed into Bitcoin, seems like a ingenious idea, given that it provided an avenue for institutional investors with a fixed-income-only mandate to get a Bitcoin exposure if so desired.

 

https://www.theinvestorspodcast.com/bitcoin-fundamentals/btc005-bitcoin-michael-saylor-a-masterclass-in-economic-calculation/

 

As far as I am concern, there is bound to be a first-mover advantage for him, since he was the first to convert his B/S to Bitcoin. And this is not a tiny stake-like that Square has bought. It is now a +$1 billion position for a $3.5 billion size company. So lots of torque.

 

It might be tempting to say that MicroStrategy is just now a Bitcoin tracker. I very much believe that the forward-thinking leadership at the company, can find ways to turn that appreciating asset into their advantage. For instance, instead of selling the Bitcoin at a profit, they could issues shares of the company as an acquisition currency, with their cost of equity dropping so fast. 

 

Often times, when the tide lift all the boats in a given industry together, a high stock price issued for M&A usually means buying a target at a steep premium. But with an unsold hoard of Bitcoin on their B/S, and a soaring stock price, the tide is lifting once specific boat (MSTR) much faster, therefore given them a very unique competitive advantage should they decide to do some M&A.

 

That is why, i feel that we are to think of MSTR 2.0 as a little bit more than just a Bitcoin index or a GBTC-like tracker. The forward-thinking leadership in MSTR 2.0 now has optionality.

 

The part where I disagree with the CEO, is where he is saying Tesla should do the same. I think not. Tesla is in an investment-mode, not a positive-cash-machine like MSTR.

 

[no_free_lunch]

Fwiw I talked with a colleague and they had a very low opinion of their actual product. I feel their core business is very competitive and there are huge vendors including Microsoft with their sights on this area.  I don't know about the company beyond that.

[LC]

Their flagship product is below average for sure.

[Gregmal]

Yea this one is a turd. It might go up because of BTC. So if thats your reason for buying, buy BTC. There is a reason this stock has been a dud for years. The CEO being a Bitcoin trader is essentially the long thesis.....

[CorpRaider]

Wasn’t this a bubble stone in the 90s too.  I saw plug power is “hot” again.  Man I’m getting old.

[Xerxes]

Bought this in Dec at around $350 and now it is around $900 USD.

 

I understand the whole notion of going direct with BTC, my view is that as a corporation that was ahead of everybody else and in a big way and was a first mover in that space (converting treasury into BTC), they will attract a new institutional investor base that cannot directly invest in BTC for whatever reason + potential fixed-income investor that bought the convertible to get that indirect exposure.

 

Lastly, as a software company, this thing will keep buying BTC, therefore the size of the bet will increase over time, even if BTC price stays flat. A GBTC or QBTC tracks only the price for the investor buying those funds. When you buy MicroStrategy, that entity buys more and more overtime as it converts its free cash flow into BTC. I think that is valuable.

 

 

[lessthaniv]

Bought this in Dec at around $350 and now it is around $900 USD.

 

I understand the whole notion of going direct with BTC, my view is that as a corporation that was ahead of everybody else and in a big way and was a first mover in that space (converting treasury into BTC), they will attract a new institutional investor base that cannot directly invest in BTC for whatever reason + potential fixed-income investor that bought the convertible to get that indirect exposure.

 

Lastly, as a software company, this thing will keep buying BTC, therefore the size of the bet will increase over time, even if BTC price stays flat. A GBTC or QBTC tracks only the price for the investor buying those funds. When you buy MicroStrategy, that entity buys more and more overtime as it converts its free cash flow into BTC. I think that is valuable.

 

I considered this but what value do you assign to the actual buisness? Perhaps a small premium to that is justified due to the ability to add BTC over time. Net the BTC out the business seems richly priced.

 

[Xerxes]

Citron threw in $4.5 billion as value for the underlying business.

Say it is lower at $3.5 billion.

 

In December, its bitcoin bet was at about $1 billion, and now it is more than $2 billion by adding more BTC and price appreciation.

Market cap today stands at $9 billion.

 

That gives $3.5 billion that is just pure premium due to (1) it being first mover (2) Saylor' podcast (3) being the messenger.

That premium can evaporate as fast as the premium on GBTC evaporates when the underlying goes down in value.

 

So overvalued, probably grossly overvalued, but i am not selling.

 

 

 

[aws]

The premium just continues to grow, with the stock trading like a 2 or 3x leveraged version of Bitcoin on up days even though at market prices it is more like 1/3rd leveraged.  This is making a pair trade of buying Bitcoin and shorting MSTR reasonable attractive to wait for some of that premium to unwind. 

 

I think at last count they have about .0065 BTC per share, assuming their convertible bonds are converted, so basically 1 btc for every 155 shares.  Let's say you assign a $400 per share value to the business itself, which would be about that 4.5 billion figure quoted before.  Premarket today the stock is 1150, so $750 of the value is the BTC holdings.  At 47k BTC x .0065 BTC per share = $300 per share.  So people are paying at least $750 for $300 of Bitcoin, which is crazy not only because of the massive premium and ease of buying BTC directly, but also because the cost basis on that BTC is like 1/3rd the value so you have a big deferred tax liability as well.

 

The ratio of shorting 155 shares to buying 1 BTC would negate the BTC portion of the trade, but maybe it would be worth altering the size to more like 100 shares to 1 BTC to account for either future purchases or the value of the business itself. MSTR isn't hard to borrow, at least not yet, so the trade can be put on at a pretty low cost.  Although with the market this crazy it would have to be a small position that you could keep open even if the premium continued to grow for a considerable time.

 

Edit: And during regular trading it pumped another 10% higher without any further increase in BTC.  Trades for 1300 with $300 of value per share worth of Bitcoin.  This market is wild.

[Broeb22]

https://www.gwinvestors.com/wp-content/uploads/2021.02.12-Quarterly-Letter-v4.pdf

 

Can someone explain in layman's terms what this guy's strategy is?

 

He is very smart, I've seen his work behind the scenes and it's thorough, but he might be one of those too smart to do well investing kind of folks.

 

He's always changing his approach and trying to do things like this Microstrategy investment that sound smart and well-reasoned but are ultimately misguided, IMHO.

 

 

 

 

 

[Xerxes]

I think the smarter person here is Michael Saylor.

 

He saw a market opportunity to turn his equity into a Bitcoin tracker by providing both an equity and debt path for institutional investors, without the regulatory pain.

It is good to see others buying, because although I am invested in MicroStrategy, I do plan exit shortly.

 

While all the pro-Bitcoin argument are valid, being deflationary and good hedge etc. etc. The reality is that today as it stands, Bitcoin represents the apogee of liquidity excesses. The real test is when the economy open and tens of billions move from financial assets into the real economy. If Bitcoin can hold itself and go up in that re-opening economy environment with the 10-year bond yield marching higher, I would say it past the ultimate test.

 

The argument that the M2-expanding-money bulls are making is neglecting that key event. Right now, i think it acts as sponge for excess liquidity and in fact maybe the very manifestation of those excesses. That is not to say the bull case is wrong. I just think it is about to get tested. Somehow I tripled that investment over a month and half and in my non-tax account I don't have unlimited capacity. So need dry powder by selling inflated assets. I still hold some exposure outside my non-tax account on BTC, so there is that.

 

Lastly, while the BTC payment adoption is getting traction, I may be wrong, but I don't see another major corporation to convert its treasury to Bitcoin, unless captained by a maverick like Musk or Saylor. Both UBER and Paypal are happy to have BTC as an interface but have no interest to have balance sheet exposure to it. The one company that I think will do it is Oracle. It has a lost of free cash flow, and the CEO is maverick and a going against the trend like Musk and Saylor.

 

If anyone has feedback on these thoughts would be appreciated