MicroStrategy is two things: a publicly listed enterprise software company whose annual revenue has barely budged in five years, and a publicly listed bitcoin trading vehicle that has borrowed money to buy volatile cryptocurrency and lost a cumulative US$2-billion in the process.
The results of this dodgy experiment have been scary — all the more so because of leader Michael Saylor’s wilful blindness to the consequences.
The company’s latest $1-billion quarterly loss, equivalent to about two years of revenue, was almost entirely due to a slump in the value of its bitcoin stash. Given rising interest rates have proven crypto is anything but a hedge, one might have expected MicroStrategy to cut its losses and stick to software. After all, even Tesla has dumped the bulk of its bitcoin pile, prioritising cash in an environment of war and pricier goods.
O, ye of little faith! MicroStrategy’s response to all these pressures, including a surge in short-seller interest, has been to stick to its bitcoin-buying bet and create two leadership roles. Saylor, the zealous supporter of crypto’s digital-gold ideology, was named executive chairman, while Phong Le was appointed CEO to focus on the day-to-day operations in the more prosaic world of cloud computing.
Ideally, separate roles at the top should allow for more checks and balances. But Saylor remains an executive and the principal overseer of the firm’s “bitcoin acquisition strategy”. Le also paid lip service to the company’s faith in the “long-term store of value” of crypto. The firm insisted that selling wasn’t an option, preferring to pledge more of its stash as collateral to satisfy lenders.
The strategy, therefore, remains the same. Even scarier were the justifications as to why.
Badly underperformed
After initially portraying bitcoin purchases as defensive, Saylor claimed they had become a source of shareholder value and a new strategic direction. Choosing a start date of August 2020, when MicroStrategy spent $250-million on 21 454 of the tokens, Saylor said the firm’s stock price had outperformed Amazon.com, Google parent Alphabet, Facebook parent Meta Platforms, Apple, and bitcoin itself.
That conveniently ignores other, less flattering data. The increased volatility of MicroStrategy’s stock price since diving into bitcoin means it has also badly underperformed all of the above, and more, over the past year. Its negative total return of 55.5% over one year is worse than all but one of 10 similar-sized peers in a Bloomberg software industry basket. Its implied cost of borrowing has also risen since taking on more crypto risk, making it pricier to refinance or issue fresh debt.
To defend this as good for the firm’s balance sheet or its shareholders is truly Panglossian. Its cumulative writedowns of $1.989-billion now exceed the $1.988-billion carrying value of its 129 699 remaining bitcoin.
Yet it’s Saylor’s follow-up that should really ring alarm bells. Acknowledging the stomach-churning swings in his company’s stock, he adopted an attitude similar to Oscar Wilde: better to be talked about as a reckless, debt-fuelled bet on digital currencies than not be talked about at all.
Saylor said buying bitcoin had made MicroStrategy a more “interesting” company, one that “attracts attention and attracts capital.” The more the C-suite, analysts, journalists and investors argued over his strategy, the less he needed to publicise it. “The thing you don’t want is to be irrelevant to the world, when nobody knows you and nobody cares whether you succeed or don’t and no one knows what you do,” said Saylor, who was already known as a symbol of hubris during the dot-com boom.
This is certainly a new twist on fiduciary duty. It suggests that it will take more profit pain and market pressure for MicroStrategy to start managing its bitcoin stash sensibly, rather than according to Saylor’s devotion to what he calls “a swarm of cyber hornets serving the goddess of wisdom”. It also raises serious questions over how the stock market became home to the kind of business that even the hedge fund world might baulk at.
Saylor’s hope is that in the kingdom of the bitcoin-blind, the laser-eyed man is king. But right now, it’s MicroStrategy that doesn’t seem to see things clearly. — (c) 2022 Bloomberg LP
