Bitcoin continues to reach new highs, why is MicroStrategy MSTR not pumping?

Bitcoin has set multiple historical highs in the past week, but MSTR's stock price closed at $434.58 last Friday, still some distance from last November's high of $543. This article will analyze MicroStrategy's Bitcoin reserve strategy based on its balance sheet, as the continued high premium (mNAV) along with the influx of competitors diluting funds may be important reasons why MSTR has failed to keep up with the rise of Bitcoin.

The balance sheet of Strategy (Balance Sheet)

Strategy uses the Balance Sheet (Balance Sheet) from the three financial statements to express the company's financial condition. The Balance Sheet includes assets, liabilities, and shareholders' equity. It shows what the company owns (assets), what it owes to others (liabilities), and how much equity the owners have (shareholders' equity). We illustrate this with the following diagram:

Liabilities ( blue block ): Includes convertible bonds and preferred stock

Shareholder equity ( green block ): The company's current market value, calculated by multiplying the current outstanding shares by the stock price.

Asset ( enterprise value, yellow block ): liabilities + shareholders' equity

Bitcoin value (Bitcoin NAV, orange block ): The amount of Bitcoin owned by the company multiplied by the current price of Bitcoin.

The ratio of the orange blocks to the yellow blocks is the mNAV, which is the enterprise value divided by Bitcoin NAV. Currently, the mNAV of Strategy is 1.87, indicating that its enterprise value has significantly exceeded the market value of Bitcoin.

How is the "42/42" plan of Strategy planned?

The latest "42/42" plan from Strategy aims to raise a total of $84 billion for Bitcoin acquisitions through stock issuance and fixed-income products by 2027. According to its latest announcement, there is still a maximum of $18.1 billion in MSTR common stock issuance capacity and $34.1 billion in fixed-income issuance capacity.

If we calculate based on MSTR's current stock price of 434 USD, it can issue an additional 41,705,000 shares, plus the current total diluted shares of 314,242,000 shares, bringing the total equity to as high as 355,947,000 shares.

The issuance of preferred stock generally does not dilute equity. (STRK has a conversion price of $1,000, and the unissued ones are not counted towards ). However, with a fixed dividend of over 8%, it is expected to bring about $3.7 billion in expenses over a year.

The issuance of additional stocks will be partially used to pay interest, slowing down the speed of purchasing coins.

The issued preferred stocks STRF, STRK, and STRD have annual dividends ranging from 8% to 10%. Based on the current issued principal, more than 315.9 million USD will be allocated for interest expenses in one year. And this is just the beginning; if the "42/42" plan is truly completed, the annual dividend alone will reach 3.7 billion USD.

( MicroStrategy issues new shares to buy Bitcoin, can the company withstand the heavy interest expenses on preferred shares? )

This also means that in the future, the new shares issued by Strategy, in addition to being used to purchase Bitcoin, must also allocate a fixed amount for the distribution of preferred stock dividends, which will also affect MicroStrategy's speed and efficiency in purchasing Bitcoin.

MSTR has not followed Bitcoin to create a new high

Bitcoin has set multiple historical highs in the past week, but MSTR's stock price closed at $434.58 last Friday, still a distance from last November's high of $543. The author believes that the continued high premium (mNAV) combined with the influx of competitors diluting funds are important reasons.

This article discusses why Bitcoin is hitting new highs while MicroStrategy (MSTR) is not pumping. Originally appeared in Chain News ABMedia.