A few years ago we haven't even heard of MicroStategy despite it being a publicly traded company for more than a couple of decades. Today it is a globally recognized brand. It appears in the news as frequently as the big tech companies like Apple, Google, Samsung, and NVIDIA. Unlike these big tech companies MicroStrategy is not known for its core business, but rather for its bitcoin strategy. This strategy will go into the business text books, will be studied and debated in the years to come. It was a bold, risky, and courageous move when MicroStrategy adopted bitcoin as at its treasury asset. For bitcoiners such a move would be a no brainer. But for the rest of the business world and Wall Street any new strategy would be super risky. There were time it seemed like they were going to fail. Then they were also rewarded. MicroStrategy has been rewarded well with its stock price appreciation in recent years due to its bitcoin holdings. The company appreciated in value more than bitcoin itself. They have pivoted and took multiple different steps to strengthen their position and improve their bitcoin strategy. It appears they are not done yet.
MicroStrategy has made another move. It has conducted 10 for 1 stock split. Just lust week MSTR was trading at $1,300s. If you look at its price now, you will see that it is trading at $135. When I first saw this I was surprised initially and thought I was looking at a different ticker and something was wrong with the price feed on TradingView. I realized very quickly that MSTR has conducted a forward split, and a quick search confirmed it. When I see a forward split like this, my understanding is that company wasn't to bring its stock price down so that more and more people can buy it again and again. Usually we see this happening with tech stocks that grow exponentially, and stock price follows the success as well. When price goes above $1,000 companies start considering forward splits. We have seen Amazon do this, Apple do this, even Tesla has done so a few years ago.
This 10 to 1 split does not change the value of the company or investors' investment value. Not right a away. If I have 100 stocks of XYZ company, stock price is $1000 dollars my total investment value is $100,000. If 10 to 1 split happens with XYZ stock, now I would hold 10 times more shares. My 100 stock shares would become 1000. But this also proportionally lowers the price, instead of stock price being $1000, it is now trading at $100. But the total investment value is still $100,000. Why bother doing this stock splits then? Most common explanation for forward splits is that companies want to make ownership of the stocks easier for everybody. It may appear as though the stock prices are cheap compared to its original price. In my opinion, it is a psychological trick that is implemented in the WallStreet to keep the money flowing into the stocks and companies who are growing, positioned well for growth and there is a lot more room to grow. This is a positive thing and usually investors welcome it. I mean the investors who are already invested in the stock before the forward split.
Some new investors may appreciate the action as well, now that stock's price may appear to be more affordable. But I also think it is to trick new investors to invest. A legal trick. A transparent trick. Overall it is a normal practice, nothing wrong with its, and usually no ill intent. But I still for some reason view it as sort of a deception. Because they trying to lure retail investors in. For institutions and big funds the price doesn't matter. They look at the bigger picture, total valuation, liabilities, etc. Retail investors look at the price. Good or bad this method of bringing more investors in does work, and usually we do see more price appreciation. With MSTR I do see more price actions in near and far future. Because of their long term bitcoin strategy MSTR will continue to attract more investors. Sadly, it won't be because of MicroStrategy's core business offering.
This is a great success for MicroStrategy to find themselves in a position to forward split. This means what they have done in recent years worked and resulted in a huge success. How did they get here? How did MicroStrategy achieve this? Of course the answer is bitcoin strategy. But what made them get to come up with such a strategy, implement it and executed perfectly? I have two reasons: Saylor and Covid.
The only reason MicroStrategy took this path is because of its founder Michael Saylor. Saylor was the one who became convinced about bitcoin's potential as an investment instrument, and he alone decided the roadmap for MicroStrategy. Without him MicroStrategy would be just another company, and would never go for bitcoin strategy. How do I know this? Any other publicly traded company could have done the same exact thing and would achieve the same results. But we haven't seen any. This strategy is so simple that anybody can understand it. In fact, since day one Saylor has been encouraging other executives to take similar steps and was willing to share the blueprint. He does that because it make the strategy even more effective. But also he hasn't hesitated to be first or be the only company who take this path. If there were win win strategies in business, this would definitely be the one.
This would have never happened without Covid either. Global pandemic and reaction by governments and central banks made Saylor consider alternative options for companies treasury strategy. Massive printing of money, huge increase money supply, devaluation of fiat, and upcoming inflation made Saylor think long and seriously about the future of its companies assets in the treasury. Central banks have always been printing, fiat has always lost its purchasing power, and inflation was always present. However, pre-pandemic numbers were not that noticeable and companies could take small losses. Covid changed things. As a CEO of MicroStrategy Saylor had a duty to take care of companies assets and treasury. They found themselves is a good spot of having half a billion dollars in reserves and had no idea what to do with it. Just keeping cash wasn't an option. Because cash would lose purchasing power and $50 million annual profits would be lost to devaluation of overall assets in the treasury. That didn't seem to be a good business strategy, not for MicroStrategy. Saylor needed a new strategy. After exploring all possible investment options, he came across bitcoin. After having a deep dive into bitcoin, Saylor would never go back. Today he is probably the most obsessed bitcoin person on the planet.
While it all started with converting money in the reserves into bitcoin, MicroStrategy under Saylor leadership wasn't not going to stop there. Half a billion dollars worth of bitcoin is great, but a billion dollars worth is even better. They tried different approaches. Getting low interest loans and buying bitcoin. Issuing company bonds and buying bitcoin. Diluting company stocks and buying bitcoin. Today MicroStrategy hold about 1% of total bitcoin's potential supply. It didn't take long for Saylor to realize that bitcoin strategy wasn't only save its treasury reserves and future cash flows, but it would also make companies stock more attractive for investors. Not because people like bitcoin and what MS has been doing. But mainly because this created an indirect exposure opportunity to bitcoin for institutional money which wouldn't be able to buy bitcoin directly. Many are invested in MSTR today because they see bitcoin as a great investment instrument, and bitcoin's success will result in MSTR's success as well. That turned out to be true. MSTR's stock price went up so much, that now it has reached to the point that company can conduct a 10 to 1 split. Impressive!
The execution of bitcoin strategy has been equally as impressive. Just having this strategy may not mean a lot. Because MicroStrategy is still a company that is controlled by few, and mostly by Saylor. It would be risky move to invest heavily in MSTR without full trust in Saylor. He is just one person and people change their minds all the time and they may have hidden agendas. For example what would happen if MS decides to sell all of their bitcoins, what happens when loans mature and they need to pay but bitcoin's price is low. Trust in person or a company is in play. Bitcoin promotes trustless systems. We can't really trust most people, and especially the companies. What Saylor did was the most amazing. He was able to build trust by actions.
Initially, their thought was to hold bitcoin for a long time, then this long time became 10 years, then it became forever. Saylor have said many times by now that MicroStrategy would hold it bitcoins forever. Initially nobody believed. There are those who don't trust this statement still. But their continuous purchases of bitcoin regardless of the price, and not selling a single coin have gain a good reputation. We still can't trust MS or Saylor. Things may change. And they have the right to change their mind and strategies. Nothing wrong with that. But for most it seems genuine when they say they will never sell their bitcoins.
There are other companies who are buying or considering to buy bitcoin as a business or treasury strategy. But none would come close to what MicroStrategy have done so far. That is kinda disappointing. Such a simple idea with proven results. While others hesitate, MicroStrategy continue moving forward and maximizes its gains on their bitcoin strategy.
