MicroStrategy invents a new way to dilute shareholders with STRK
MicroStrategy (MSTR) Executive Chairman Michael Saylor has announced a number of ways to dilute his shareholders. On Monday, the company announced a brand new type of stock with an independent ticker symbol, STRK, that will conditionally convert into more shares of MSTR.
The company has applied to list this new, series A perpetual strike preferred stock on NASDAQ. Once it debuts for trading, STRK buyers will be looking to earn dividends from MicroStrategy and meet the conditions for conversion into MSTR.
Before conversion, the new supply of STRK will obviously compete with the demand for MSTR shares on an ongoing basis. Once STRK shareholders convert into MSTR, the supply of MSTR will mathematically increase.
For 12 months, the supply of MSTR has increased rapidly from a cornucopia of financial engineering. One year ago, the market cap of MSTR was $8.8 billion. Today, it’s about 1,000% higher even though its share price is only 600% higher.
That extra 400% delta in market capitalization above the share price of MSTR is attributable to the increased supply (dilution) of MSTR shares.
Worse, the supply of MSTR will continue to inflate as years progress even if the share price stays flat. Because of options and convertible instruments — such as executive compensation and corporate debt — there are 61.4 million more assumed diluted shares outstanding of MSTR than its currently reported 226.85 million shares outstanding.
In other words, even if the price of MSTR stays constant, the number of shares of MSTR will increase as time transpires and these instruments convert into common stock.
Read more: Exclusive: Tether whale Heka thinks MicroStrategy is expensive
Diluting an asset multiple and renaming it ‘yield’
To his credit, Saylor has consistently used most of the proceeds of these dilutive instruments to acquire more (BTC) for the benefit of MSTR shareholders. So far, he has accreted a positive BTC yield every quarter per fully diluted share of MSTR.
This “bitcoin yield,” however, doesn’t come from magic or business profits, but rather the company’s capture of the premium that Wall Street has already placed on its shares above the value of its BTC holdings.
Once higher than 3.4X the value of its BTC holdings, MSTR still trades at a more modest (albeit still incredibly generous) 1.8X. In other words, MicroStrategy’s BTC is over 80% more expensive via MSTR than just buying BTC directly.
By diluting MSTR with convertible debt, options, at-the-money offerings, or its new STRK hybrid securities shelf, MicroStrategy regularly captures a portion of this multiple and then boasts that it’s providing shareholders a “bitcoin yield.”
Despite this obvious wordplay, Saylor consistently brags about this so-called yield whenever he purchases more BTC.
The company’s new STRK is simply another method of increasing the supply of securities available to MicroStrategy investors. In other words, de facto dilution that long-term believers hope will be accretive.
Got a tip? Send us an email or ProtonMail. For more informed news, follow us on X, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel.