Making Sense of MicroStrategy's MSTR Plan

Last week, Michael Saylor’s MicroStrategy raised $584M of fresh capital through a new offering called STRK. Although the structure of this offering differed from that of previous raises, it too was similarly conducted with the central intention of raising cash to buy more bitcoins.

Today, we travel back in time to examine how MicroStrategy’s BTC accumulation strategy has evolved throughout recent years. 👇

MicroStrategy became the first publicly traded company to implement a BTC treasury accumulation strategy with its purchase of 21,454 tokens for $250M in August 2020.

Since making this initial investment, the price of BTC has increased tenfold as more individuals, corporations, and governments have come to identify the potential benefits of HODLing.

The most recently available data indicates that MicroStrategy held approximately 471k BTC – or 2.2% of all bitcoins that are scheduled to exist – at the time of this analysis.

MicroStrategy initially decided to raise capital by issuing and selling new MSTR shares, but as sales must be absorbed by the market, they can negatively impact share price in the absence of buyers.

By December 2020, the firm shrewdly resorted to mitigating the impact of these inevitable share sales with debt. It subsequently raised $572M through its first “convertible note,” or an agreement to repay dollar-denominated debt in full before a specified future date with cash, MSTR shares, or a combination of both.

While MicroStrategy’s bread and butter had been a combination of the aforementioned direct share and convertible note sales since the beginning of its BTC accumulation strategy days, the recently approved “21/21 Plan” enabled the company to issue up to $21B in fixed income instruments, $2B of which it intends to raise through the issuance of "preferred stock.”

As part of this plan, on January 27, MicroStrategy announced it intended to raise $250M with STRK (short for Strike Preferred Stock Offering), a new type of security that earns quarterly interest payments and can be converted in perpetuity (meaning there is no set repayment date) for 0.1 MSTR at a price of $1k per share.

Despite raising $584M from its initial STRK issuance thanks to above-expected demand, MicroStrategy was forced to settle for a lower headline number, and received only $80 per share instead of the initially projected $100 per share. 

It’s a stark new era for MicroStrategy’s BTC accumulation strategy, and although the firm was able to raise a fresh batch of cash for bitcoin buys, it was on decidedly different terms than recent convertible bond issuances.

STRK requires hearty quarterly dividend payments, imposing a considerable cash need for a firm that lost $340M according to its most recent available financial reports from Q3 2024. Fortunately, with fewer shares needing to be issued to redeem STRK to convertible notes, existing MSTR shareholders are expected to suffer less dilution from this offering.

The promise of interest payments undeniably attracted increased interest for STRK, but it may signal future difficulties that MicroStrategy will encounter if it attempts to raise more money through traditional share sales or zero interest convertible note issuances.

For as long as bitcoin investments remain in favor, however, MicroStrategy’s strategy of accumulating more tokens per existing shareholders can be expected to continue attracting new participants, who remain optimistic that another willing buyer will come along to buy their bags at a higher price point.