Bitcoin ‘Maximalist’ Saylor Makes Crypto His Only Job

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Michael Saylor’s new job looks a lot like his old job: adding bit­coin to the bal­ance sheet of his busi­ness-soft­ware com­pa­ny with reli­gious fervor. 

“I’m a bit­coin max­i­mal­ist, I hap­pen to believe that bit­coin is an instru­ment of eco­nom­ic empow­er­ment, it’ll be ben­e­fi­cial to eight bil­lion peo­ple,” Say­lor told Forbes in an inter­view. “I also hap­pen to believe that bit­coin is unique,” he con­tin­ues, because of “the Immac­u­late Con­cep­tion, decen­tral­iza­tion, and its com­mod­i­ty sta­tus. All of these things make it the supe­ri­or asset in the space.”

The Immac­u­late Con­cep­tion he means is the found­ing of bit­coin, as explained in a 2008 white paper by one or more peo­ple using the name Satoshi Nakamo­to. Say­lor stat­ed that bit­coin is the only cryp­to asset which is tru­ly decen­tral­ized and with­out an issuer. He backs bit­coin as a cor­po­rate invest­ment in part because he believes there is reg­u­la­to­ry agree­ment among U.S. reg­u­la­tors that bit­coin is a com­mod­i­ty and falls under the Com­mod­i­ty Futures Trad­ing Commission’s juris­dic­tion. There is debate about whether var­i­ous oth­er cryp­tocur­ren­cies are secu­ri­ties and thus fall under the Secu­ri­ty and Exchange Commission’s purview, as that agency has stated.

“The vast major­i­ty of the oth­er cryp­tos are unreg­is­tered secu­ri­ties,” Say­lor said. “They have an issuer, they will pass the Howey Test and so if you’re going to invest in an equi­ty type instru­ment, you’re real­ly a ven­ture cap­i­tal­ist. We’re not invest­ing as ven­ture cap­i­tal­ists, we don’t want to take that kind of risk. In addi­tion to the tech­ni­cal risk, the com­pet­i­tive risk, you also have reg­u­la­to­ry risk, the uncer­tain­ty of not know­ing how they’ll be treated.”

Say­lor has turned the ana­lyt­ics busi­ness he found­ed into a lever­aged bet on bit­coin, with a stash worth about $1.9 bil­lion and total debt of $2.7 bil­lion. For Microstrategy’s first bit­coin pur­chase in 2020 the com­pa­ny used $250 mil­lion of its cap­i­tal to buy the cryp­tocur­ren­cy. Then the com­pa­ny bor­rowed $2.4 bil­lion and sold $1 bil­lion of equi­ty to fund its sub­se­quent bit­coin investments. 

The con­cept has been good to Microstrategy’s stock price, up 159% to $319 a share since bit­coin pur­chas­es began in 2020, though down 60% from the $816 peak it reached when the cryp­to was at its all-time-high on Novem­ber 10. Yet the bit­coin strat­e­gy hasn’t done any­thing for the bot­tom line; the last net prof­it Micros­trat­e­gy record­ed was in Q3 2020.

Last week the com­pa­ny post­ed a $1.06 bil­lion loss for Q2, most­ly attrib­ut­able to a $918 mil­lion loss on its cryp­to hold­ings. Still, unlike automak­er Tesla
TSLA
, which win­nowed its bit­coin hoard, Micros­trat­e­gy revealed that it had added $10 mil­lion worth in the peri­od. It also announced that Say­lor would turn over CEO duties to CFO
CFO
Phuong Le, who will mind the soft­ware store. Say­lor becomes exec­u­tive chair­man and is in charge of bit­coin strategy. 

He must be okay with the switch. The com­pa­ny founder con­trols 68% of its vot­ing pow­er through his class B shares, though he has only 4% of the pub­licly trad­ed class A, accord­ing to Microstrategy’s April proxy state­ment.

Before tak­ing the cryp­to plunge, Micros­trat­e­gy shares had pro­duced aver­age annu­al returns of about 13% since com­ing pub­lic in 1998, almost twice the gain of the Stan­dard & Poor’s 500. The company’s soft­ware helps clients gath­er and man­age data relat­ed to their busi­ness­es, but its annu­al rev­enue plateaued between $500-$600 mil­lion over the past decade. Addi­tion­al­ly, Micros­trat­e­gy strug­gled to grow in a mar­ket crowd­ed with larg­er rivals like Microsoft
MSFT
and Oracle
ORCL
.

“In the 2017 time­frame, we decid­ed that we were going to spend a lot more mon­ey to grow, and we chan­neled hun­dreds of mil­lions of dol­lars into sales and mar­ket­ing and growth ini­tia­tives,” Say­lor says. “What we found is, it does­n’t mat­ter how much mon­ey you spend, it does­n’t move the needle.”

In order to save his busi­ness, Say­lor felt Micros­trat­e­gy need­ed to take a risk. He chose to go for cryp­to gold. 

The soft­ware busi­ness remains prof­itable, bring­ing in $22 mil­lion net cash from oper­a­tions over the past six months. How­ev­er, that fig­ure is down from $76 mil­lion over the sim­i­lar peri­od in 2021. Expand­ing the soft­ware oper­a­tion is now Le’s job.

Bitcoin’s
BTC
bad year put a dent in the Micros­trat­e­gy bal­ance sheet. After the dust from the cryp­to decline set­tled, lia­bil­i­ties out­weigh assets in Q2 for the first time since 2003, result­ing in $187.1 mil­lion of neg­a­tive shareholder’s equity. 

Lit­tle light was shed on finances dur­ing the company’s quar­ter­ly earn­ings call. For the ques­tion-and-answer ses­sion, Shirish Jajo­dia, Microstrategy’s direc­tor of investor rela­tions, read out ques­tions from unnamed ana­lysts, an unusu­al format. 

While the finan­cial ben­e­fits may be dubi­ous, the bit­coin bet has cer­tain­ly launched Micros­trat­e­gy – and Say­lor – into the pub­lic eye. His bit­coin-focused Twit­ter account has amassed 2.6 mil­lion fol­low­ers, and he reg­u­lar­ly appears in the media to speak as an advo­cate for the orig­i­nal cryptocurrency. 

“Nobody wants to talk about busi­ness intel­li­gence. If I were to tweet non­stop about busi­ness intel­li­gence, then that engage­ment would fall off dra­mat­i­cal­ly, because the aver­age per­son does­n’t buy enter­prise busi­ness-intel­li­gence soft­ware,” Say­lor said. “The aver­age per­son is con­cerned about macro­eco­nom­ics, pol­i­tics, dig­i­tal assets, cryp­to freedom.”

In addi­tion to grow­ing his per­son­al audi­ence, Say­lor stat­ed that bit­coin dri­ves pub­lic engage­ment with Micros­trat­e­gy. The company’s trad­ing vol­ume is also heav­i­ly impact­ed by investor inter­est in bitcoin. 

“The major­i­ty of the enter­prise val­ue of the com­pa­ny is now attrib­ut­able to the bit­coin strat­e­gy,” Say­lor says. “The bit­coin strat­e­gy does­n’t have a full-time employ­ee. I rep­re­sent bit­coin. It’s not a labor-inten­sive busi­ness or an activ­i­ty-inten­sive busi­ness; it real­ly is a cap­i­tal-inten­sive business.”

Since Microstrategy’s first bit­coin pur­chase in 2020, the com­pa­ny has fun­neled rev­enue from its soft­ware busi­ness into pur­chas­es, accord­ing to Say­lor. In March, Micros­trat­e­gy also took a $205 mil­lion loan from cryp­to-focused Sil­ver­gate Bank to buy more bit­coin, using exist­ing hold­ings as col­lat­er­al. If bit­coin falls below $21,000 – it’s under $24,000 now – that could trig­ger a mar­gin call, but Say­lor has said the company’s loan is 10x
ZRX
over­col­lat­er­al­ized and has plen­ty more on its bal­ance sheet to cov­er if nec­es­sary. Rev­enue from the soft­ware busi­ness is also used to pay inter­est on the Sil­ver­gate loan. 

Beyond the finan­cial ben­e­fit of the strat­e­gy itself, the company’s sta­tus as a way to gain bit­coin expo­sure on a tra­di­tion­al finan­cial mar­ket makes cap­i­tal-rais­ing eas­i­er, “I don’t have to beg peo­ple to invest in MicroStrategy
MSTR
stock,” Say­lor said.

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