Michael Saylor Increases Yield On Strategy Shares To Reinforce Multibillion-Dollar Bitcoin Bet

Michael Saylor, the chairman of Strategy (formerly MicroStrategy), the largest corporate Bitcoin (BTC) holding company, is intensifying his multibillion-dollar investment in BTC.

In a recent report by Bloomberg, it was revealed that Saylor is increasing the yield on preferred shares, which he has designated as the primary funding source for the company going forward. 

Investor Confidence Dips

During an earnings conference call, Saylor indicated that the company is at a critical juncture. He noted that the multiple of net asset value has been declining over time as the Bitcoin asset class matures and volatility decreases. 

As part of its latest financial developments, Strategy announced that the yield on its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) will rise by 25 basis points to 10.5% starting in November. 

On Thursday, the company reported a net income of $2.8 billion for the quarter, largely attributed to an unrealized gain from its substantial cryptocurrency holdings, which are valued at approximately $70 billion.

Despite Bitcoin reaching record highs during the third quarter and many public firms mimicking Saylor’s treasury model established five years ago, investor confidence is waning. 

Strategy’s shares (MSTR) have plummeted about 45% since reaching a record high last November, diminishing much of the premium the stock previously enjoyed over its Bitcoin assets. 

Furthermore, demand for the preferred shares has been lukewarm, with recent sales falling short of Saylor’s expectations for significant capital raises. This has led to a slowdown in Bitcoin purchases recently.

In response to these challenges, Strategy is exploring international markets for capital and is considering launching exchange-traded funds (ETFs) backed by the preferred shares, as outlined by CEO Phong Le during the earnings call. 

Saylor Open To Strategy Equity Sales

Following the release of second-quarter results, Strategy had committed to not issuing new common shares at less than 2.5 times its net asset value, except to cover debt interest or preferred dividends. 

However, Saylor indicated a willingness to opportunistically tap into the market when the premium is favorable, using equity sales to fund additional Bitcoin purchases. Despite attempts to reassure shareholders, the company subsequently issued more common shares, prompting skepticism.

Gus Gala, an analyst at Monness Crespi Hardt & Co., expressed concerns regarding potential dilution, stating that if current sales are executed, the dilution could become substantial. 

In the latest earnings report, Strategy confirmed that it did not issue shares under its Common Stock ATM Program this month and reiterated its commitment to a disciplined approach in raising funds through equity.

The company also adopted new accounting standards in January that require it to include the fair value of its Bitcoin holdings in its earnings reports. This change has resulted in significant fluctuations between profits and losses over the past two quarters, including a loss of approximately $340 million in the same period last year.

Featured image from DALL-E, chart from TradingView.com