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I mean...wat. The company in question seems to essentially have no intention of spending their cash, yet instead of just paying it out in dividends or stock buy backs they're pumping it all into bictoin (or investing in growth).
This doesn't make sense for a number of reasons. Firstly: The company has no competitive advantage buying bitcoin. If investors in this company wanted to buy bitcoin there's no reason not to just pay a dividend and let the investors buy bitcoin.
Secondly, investors can now no longer invest in MicroStrategy - since the value of your investment in MSTR is now 2/3rd determined by the performance of MSTR, and 1/3rd determined by the performance of bitcoin. Essentially attaching a hugely risky bet on bitcoin to a business analytics company.
Thirdly, even if you do buy their contention that USD is going to go to 0 (which is a wild contention) there are other assets you would buy. Commodoties, Foreign currencies, real estate - hell even Treasury Inflation-Protected bonds would all form part of your portfolio.
Fourthly, you're signing yourself up for this enormous risk of owning bitcoin. You've essentially put a $400m target on your back saying "If you can compromise our security, you could have half a billion dollars!". Now obviously security is important in all asset ownership, but most assets have far more reputable people willing to offer services to secure your possessions (like a bank).
On the other hand though this does make it nice and easy for the CEO to disappear off with half a billion of his investors money in his back pocket. I'm sure glad those investors are in safe hands though - this would be really suspicious if the CEO had previously had to settle accounting fraud charges.
>Firstly: The company has no competitive advantage buying bitcoin.
They were able to secure Bitcoin from an OTC desk, at a discount relative to what retail investors pay. You're essentially able to secure the BTC without effecting markets, with this size of purchase it's highly advantageous.
MSTR very loudly announced their strategy which was quickly followed by other public companies. (bitcointreasuries.org) Although this type of strategy has been adopted before, the FOMO has really started kick off.
This is fundamentally not any different than APPL holding cash, although I'd question the ever decreasing value of USD relative to BTC.
>> MicroStrategy’s revenues have barely grown over the past decade, from $455 million in 2010 to $486 million last year.
Totally agree, and this line from the article jumped out at me. So -- during a giant tech boom -- the company was unable to grow revenues...and now it is pivoting to a pseudo-asset management company with a singular bet on BTC?
As a shareholder, why would I want this? If I need BTC exposure, I can buy BTC directly, I dont need it co-mingled with a software firm.
How does the board allow this to happen?
The cynical take is that company boards are often close knit and carefully networked old boys clubs full of people willing to screw over shareholders to help out each other, because a CEO in one company is often on the board for another company, which will then have some of the other board members in C level positions.
It's a super incestuous club that basically prevents you from losing money
>> How does the board allow this to happen?
This is the real question. I wish we could have a transcript of the discussion between treasury staff and the board on why it was a good idea to tie up cash in this way.
"MicroStrategy could have gotten rid of its excess cash by paying a big dividend or buying back a ton of stock. Instead, the company made a big digital currency bet."
I love that we live in a world excess income by a company is just expected to go to buybacks and not towards expanding operations and R&D.
Expanding operations can quickly turn into managerial empire building. Pumping more capital into a business may or may not yield proportionate returns.
If the money is returned to shareholders, they are now free to deploy the capital how they see fit. This could be for personal consumption, investing in new companies or funding R&D. All of these are positive outcomes for society at large.
But I fail to see what positives can come from putting $425MM into a volatile and mostly speculative digital asset.
Returning profits to shareholders was the historical default.
It's only recently that companies have decided that pursuing endless (and often pointless, see Google) expansion is better than paying dividends, and generally this behavior is mostly tech companies.
That's the whole point of a joint stock company. If capital is never returned to investors, why would they invest in the company in the first place?
I think stock is supposed to be like gold, you invest in the value of gold. As long as it's a valuable asset, there will be demand. The idea of explicitly returning value to investors wasn't common until the 1980s
> The idea of explicitly returning value to investors wasn't common until the 1980s
Dividends were very common pre-1980. What makes you think they weren't?
> I think stock is supposed to be like gold, you invest in the value of gold.
The value of a stock comes from the possibility of capital return from the company. If the company never gives anything to shareholders, the value of a stock is no more than the paper it's printed on.
I was mostly talking about stock buybacks https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
Dividends were often a very small piece of a companies expenses, just to incentivize long term holding of shares, not short term seeking of profits
A buyback is just a way to structure a dividend for better tax treatment. Do stock buybacks and dividends form a larger fraction of corporate earnings now than they did historically?
That would only make sense to do if they believed in their own business model.
I would bet it on Ethereum instead of bitcoin.