MicroStrategy and Its Convertible Debt Scheme

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MicroStrategy (MSTR) stock is soaring alongside bitcoin. In the wake of extreme confidence, we fear many MicroStrategy investors fail to grasp the inherent risks with its unique convertible bond funding and leverage scheme. A recent podcast featuring Tom Lee presented some positive facts about MicroStrategy's recent convertible bond offering but failed to tell the whole story. Left out of Lee's enthusiastic outlook is that the "novel strategy" can also bankrupt the company.

While bitcoin may continue higher, proving MicroStrategy's CEO Michael Saylor a genius, investors should at least appreciate what may happen if things do not go according to plan. We now present the other side of the story.

What is MicroStrategy?

Per its website, MicroStrategy "provides software solutions and expert services that empower every individual with actionable advice." Since 2000, the company has had a cumulative $1.4 billion net loss. Furthermore, its revenue has deteriorated over the last 10 years, as shown below, courtesy of SimpleVisor.

simple view

As a software solutions company, it is a bust. However, its CEO, Michael Saylor, has avoided bankruptcy, at least for now.

Saylor transformed a flailing technology business into a leveraged bitcoin holding company.

Over the last five years, MicroStrategy has borrowed $7.27 billion via convertible debt securities and doubled its share count to purchase bitcoin. We highlight the tremendous growth in its outstanding shares and the value of its bitcoin holdings below.

MSTR