Michael Saylor, the chairman of Strategy, the world’s largest corporate Bitcoin (BTC) holder, is doubling down on his multibillion-dollar investment in BTC.
A recent report has revealed that Saylor is raising the yield on preferred shares, which he has designated as the company’s primary funding source moving forward.
Investor Confidence Dips
During an earnings conference call, Saylor indicated that the company has reached a critical juncture. He pointed out that the multiple of net asset value has been steadily declining as the Bitcoin asset class matures and its volatility eases.
As part of its financial updates, Strategy announced that the yield on its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) will be raised by 25 basis points to 10.5%, effective this November.
On Thursday, the company reported a net income of $2.8 billion for the quarter, a figure largely driven by unrealized gains from its substantial cryptocurrency holdings, currently valued at about $70 billion.
Despite Bitcoin hitting historic highs in the third quarter, and many firms emulating Saylor’s treasury model developed five years ago, investor confidence appears to be faltering. Strategy’s shares (MSTR) have sunk by approximately 45% since their record high last November, reducing much of the previously enjoyed premium over its Bitcoin assets.
Additionally, the appetite for preferred shares has been tepid, with sales falling short of Saylor’s capital-raising expectations. This slowdown has consequently hindered Bitcoin purchase activity recently.
In light of these challenges, Strategy is investigating international markets for potential 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
After releasing their second-quarter results, Strategy had vowed to refrain from issuing new common shares at less than 2.5 times its net asset value, except for covering debt interest or preferred dividends.
However, Saylor now appears open to opportunistically tapping the market when conditions are favorable, utilizing equity sales to fund further Bitcoin acquisitions. This shift has raised skepticism among shareholders, especially after the company issued more common shares shortly thereafter.
Gus Gala, an analyst at Monness Crespi Hardt & Co., voiced concerns over potential dilution, suggesting that if current sales proceed, the dilution might be significant.
In the latest earnings report, Strategy confirmed it had not issued shares under its Common Stock ATM Program this month and reiterated its commitment to a careful capital formation strategy through equity.
The company also adopted new accounting standards in January requiring the fair value of its Bitcoin holdings to be reflected in earnings reports. This update has led to substantial fluctuations in profits and losses over recent quarters, including a loss of roughly $340 million in the same period last year.
With these dynamic developments, all eyes remain on Saylor and Strategy as they navigate the intricate landscape of corporate cryptocurrency holdings.
