Bitcoin as Treasury Strategy
MicroStrategy is a Real Company using Bitcoin Strategically
If you are reading this blog you are likely aware that a company recently decided to buy $250 million in bitcoin as a strategic treasury move. Like you, I was surprised by the move and wanted to “double click” on it and see if this is a PR move or actually a treasury team that truly believes Bitcoin is a hedge against inflation or these troubled times or simply the best alternative investment for their cash reserves.
From the website of the Corporate Finance Institute (cfi.org) and for clarity here is what the purpose of Finance/Treasury departments or functions:
‘Their job is to create value by managing capital in a way that earns higher than expected risk-adjusted returns.’
MicroStrategy
First we need to look at the company that bought bitcoin for its’ treasury strategy. You are likely thinking what I thought, I know the name MicroStrategy, but who is MicroStrategy?
In 1989, MicroStrategy was founded on the principle that the future belongs to organizations that effectively harness the power of their data. So basically they are a Business Intelligence Software provider.
From the MicroStrategy Website we can gather the following of their high level mission, vision and what they do:
“We help organizations transform data into real-world intelligence and answer their toughest business questions.”
Vision: Intelligence Everywhere
Mission: “To make every enterprise a more intelligent enterprise
I actually like Wikipedia for overviews on companies as you get all the meat without the sizzle.
- Revenue $486 million (2019)
- Net income $34 million (2019)
- Total Assets $917 million (2019)
- Employee Count 2,396 (2019)
Well they certainly seem like a real company and are doing well if not setting the BI world aflame. I have to give them credit for seeing Data Analytics well before most others did as they are a 30+ year old company. Their primary competitors are IBM, SAP and Oracle, so they are playing in the big leagues for sure.
In the time of Wirecard, Theranos and more recently Kodak, we are all right to be a bit skeptical about something like a company putting $250M into bitcoin.
Looking at MicroStrategy’s investor relations website and reading about them leads this author to believe that MicroStrategy is anything but a fly by night or flaky company. Honestly they are a bit staid and boring to be honest.
The Team
Here I am going to make some assumptions.
- The CFO led the push to purchase Bitcoin for MicroStrategy.
- The CEO and Board signed off on the purchase.
First the CFO. Phong Le is according to their IR website exceedingly well qualified for the role of CFO at a billion dollar publicly traded company. Mr. Le has an MBA from MIT Sloan, he had nearly 12 years at Deloitte in audit and then a succession of CFO / VP of Finance roles prior to his current stint as CFO at MicroStrategy, a role he has held for 5 years. The only thing that stands out is his experience was focused on the Telecom industry prior to MicroStrategy.
The CEO Michael Saylor is the founder of MicroStrategy and an MIT graduate with a bevy of patents to his name. He even has his own Wikipedia page and honestly seems like one of the few founders that is capable of running a company from founding to IPO and beyond.
It is worth noting that Michael Saylor tweeted out the following in 2013. Predictably the Twitterverse was not very kind to this change of direction after SEVEN YEARS. Can you imagine if you were not allowed to change any opinions after seven years of new data and information.
#Bitcoin days are numbered. It seems like just a matter of time before it suffers the same fate as online gambling.
Personally I think that tweeting things out does not prevent you from changing your mind with new data. I think we can assume most smart people change their mind with new data and certainly a CEO of a Data Analytics company would be able to learn and grow.
The Board of Directors is small with only 5 members and sadly all middle aged white guys. Again with a “Male, Pale and Stale” board but unlike bank’s boards this one has plenty of tech knowledge. The board is certainly qualified with a mix of investment and industry experts. Stephen Graham, Jarrod Patten, Carl Rickertsen and Leslie Rechan (he) makes up the MicroStrategy board.
If anyone from MicroStrategy reads this, I hope you can add a board member that adds some level of diversity to your board, it is after all 2020.
Treasury
Reading the July 2020 investor relations deck from MicroStrategy they actually said they were going to do this. They showed “$500+ million cash and short-term investments is a strategic asset.”
“Seeking to invest up to $250 million of excess cash in alternative investments over the next 12 months” MicroStrategy Investor Relations Deck July 2020
Why and why now, luckily for us, is no mystery as Michael J. Saylor tells everyone the strategy behind MicroStrategy’s Bitcoin purchase.
“This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash,”
There is not a Bitcoin fan that didn’t get a little giddy reading this from a long time successful technology executive. Me included.
His next quote went even further:
“MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy,”
Yes, the CEO of a billion dollar publicly traded company said the main holding for its’ reserve strategy is Bitcoin. So MicroStrategy has $500M in cash in 2020 and they decide to put half of that in Bitcoin. WOW !
Market Reaction
There are two things to look at here:
How did Bitcoin do after the news?
“The bitcoin price was, however, broadly unmoved by the news MicroStrategy had snapped up 21,000 of the total possible supply of 21 million bitcoin.” Forbes Billy Bambrough August 13th.
In fairness Bitcoin has been on an upswing and there is always some debate in the bitcoin world about pricing. Actually at the same time there was a bunch of talk about mining space gold that could crater (pun intended) the price of gold. As with all Bitcoin price moves or non-moves, lots of chatter gets built into the price.
How did MicroStrategy (MSTR) stock do after the news?
MicroStrategy stock reacted positively to the news by jumping 10%. This is not a shocking OMG reaction, but it is a very positive reaction to arguably the biggest shift in Treasury management of the past 10 years. Actually a quick calculation shows that MSTR added about $100M to their valuation with this $250M investment, so unless Bitcoin crashes, it already looks like a smart move.
Who is next? What bold CFO is now willing to bet a portion of their precious treasury short term assets on Bitcoin. Or maybe the next one is Ethereum (ETH) or Ripple (XRP).
Personally I have to believe that Ripple’s CEO Brad Garlinghouse is speed dialing every CFO in his rolodex to find someone to make this type of announcement on XRP.
