Michael Saylor’s new job is much like his old job: adding bitcoin to the balance sheet of his enterprise software company with religious fervor.
“I am a bitcoin maximalist, I think bitcoin is an instrument of economic empowerment, it will benefit eight billion people,” Saylor said. Forbes in an interview. “I also believe bitcoin is unique,” he continues, because of “the Immaculate Conception, decentralization, and its commodity status. All of those things make it the top asset in the space.
The Immaculate Conception he talks about is the foundation of bitcoin, as explained in a 2008 white paper by one or more people using the name Satoshi Nakamoto. Saylor said bitcoin is the only truly decentralized, issuerless crypto asset. He supports bitcoin as a business investment in part because he believes there is a regulatory agreement among US regulators that bitcoin is a commodity and falls under the jurisdiction of the Commodity Futures Trading Commission. There is some debate over whether various other cryptocurrencies are securities and therefore fall under the jurisdiction of the Security and Exchange Commission, as stated by that agency.
“The vast majority of other cryptos are unregistered securities,” Saylor said. “They have an issuer, they will pass the Howey test and so if you are going to invest in an equity type instrument, you are really a venture capitalist. We don’t invest as venture capitalists, we don’t want to take that kind of risk. In addition to the technical risk, the competitive risk, you also have the regulatory risk, the uncertainty of not knowing how they are going to be handled.
Saylor has turned the analytics business he founded into a leveraged bitcoin bet, with a reserve of around $1.9 billion and total debt of $2.7 billion. For Microstrategy’s first bitcoin purchase of 2020, the company used $250 million of its capital to purchase the cryptocurrency. Then the company borrowed $2.4 billion and sold $1 billion in equity to fund its subsequent bitcoin investments.
The concept has been good for Microstrategy’s share price, up 159% to $319 per share since bitcoin buying began in 2020, though down 60% from the high of $816. reached when the crypto was at its highest level on November 10. Yet the bitcoin strategy did nothing for the bottom line; the last net profit recorded by Microstrategy dates back to the third quarter of 2020.
Last week, the company recorded a loss of $1.06 billion for the second quarter, mainly attributable to a loss of $918 million on its crypto holdings. Yet unlike automaker Tesla
It must agree with the switch. The company’s founder controls 68% of his voting rights through his Class B shares, although he only owns 4% of the publicly traded Class A shares, according to Microstrategy’s April proxy statement.
Prior to taking the crypto plunge, Microstrategy shares had produced average annual returns of around 13% since their IPO in 1998, nearly double the gain of the Standard & Poor’s 500. The firm’s software helps customers to collect and manage data related to their activities, but its annual revenue has plateaued at between $500 million and $600 million over the past decade. Additionally, Microstrategy struggled to grow in a market crowded with larger competitors like Microsoft.
“During 2017, we decided we were going to spend a lot more money growing, and we funneled hundreds of millions of dollars into sales, marketing and growth initiatives,” Saylor says. “What we found is that no matter how much money you spend, it doesn’t move the needle.”
In order to save his business, Saylor felt that Microstrategy had to take a risk. He chose to go for crypto gold.
The software business remains profitable, generating $22 million in net cash from operations over the past six months. However, that figure is down from $76 million over the same period in 2021. Expanding the software mining is now Le’s job.
Little light was shed on financials during the company’s quarterly earnings call. For the Q&A session, Shirish Jajodia, director of investor relations at Microstrategy, read questions from anonymous analysts, an unusual format.
While the financial benefits may be questionable, bitcoin betting has certainly launched Microstrategy – and Saylor – into the public eye. His bitcoin-focused Twitter account has amassed 2.6 million followers and he regularly appears in the media to speak as an advocate for the original cryptocurrency.
“Nobody wants to talk about economic intelligence. If I were to tweet non-stop about business intelligence, that engagement would drop dramatically, because the average person doesn’t buy enterprise business intelligence software,” Saylor said. “The average person is preoccupied with macroeconomics, politics, digital assets, crypto freedom.”
In addition to growing his personal audience, Saylor said bitcoin drives public engagement with Microstrategy. The company’s trading volume is also heavily impacted by investor interest in bitcoin.
“The majority of the company’s enterprise value is now attributable to the bitcoin strategy,” says Saylor. “The bitcoin strategy has no full-time employees. I represent bitcoin. It’s not a labor-intensive business or a business-intensive business; it’s really a capital-intensive business.
Since Microstrategy’s first bitcoin purchase in 2020, the company has funneled revenue from its software business into purchases, according to Saylor. In March, Microstrategy also took out a $205 million loan from crypto-specialist Silvergate Bank to buy more bitcoin, using existing holdings as collateral. If bitcoin falls below $21,000 — it’s now below $24,000 — it could trigger a margin call, but Saylor said the company’s loan is 10x
Beyond the financial benefit of the strategy itself, the company’s status as a way to gain exposure to bitcoin in a traditional financial market makes it easier to raise capital, “I don’t have to begging people to invest in MicroStrategy