MicroStrategy 1Q25: Thesis Confirming

BTC Holdings: 553,555

BTC Yield: 13.7%

NAV: $53,234,902,757

Premium to NAV: 93.72%

What an earnings call. Listening to Saylor and the MSTR team is unlike listening to any other management team at a quarterly. There's so many odd KPIs that they've come up with and its a headache. MSTR missed on earnings because the price of bitcoin fell more than expected during the quarter and they had to adjust their new bitcoin to fair value. However, they upped their guide on BTC Yield and BTC Gain, largely because of their expanded capital raise guidance. MSTR had formally guided to raise $21 billion in equity and $21 billion in fixed income products through 2027. They've now guided to raise $42 billion in each category under the 42/42 plan. This gives them a lot more run-room to raise equity as they had completely tapped out the original $21 million. Saylor also openly admitted on the call that much of the money raised will be used to service debt and preferred dividends. While this isn't inherently a problem I do feel it's a red flag when a company is using new capital raises to service their cost of capital and not to create value.

It's almost as if Saylor read my short pitch. He spent a meaningfully portion of the 2 hour earnings call justifying MSTR's premium to NAV. Here are all the reasons they claim BTC trades at a premium to NAV:

I'm shocked by the amount of bullet points dedicated to the argument that institutional investors like MSTR for BTC exposure or volatility exposure because this felt like the competitive advantage with the least moat in my initial analysis. I think they will see competition enter the space from other Bitcoin Treasury Companies and from regulatory relaxation concerning cryptocurrencies. 21, which is a SoftBank and Tether backed BTC treasury company, will come public with $3 billion in Bitcoin in the near future, making them easily MSTR's largest competition. Other well-funded operations will be able to provide the liquidity and volatility that investors have enjoyed in MSTR. Management has little control over volatility and liquidity because this is dictated by the broader market. While they can take action to encourage it, it's certainly not something they can guarantee. There is no competitive moat in buying bitcoin outside of an advantage in capital raising. I would argue that a well funded group like 21 has equal competitive positioning in this respect. Also, regulation surrounding crypto, if Saylor is right, will continue to become more relaxed. This will allow institutions to have broader access to BTC products instead of being stuck with public equity alternatives like MSTR.

Overall, I feel the thesis is intact. They did call some convertible shares this month so the diluted share count lowered which in turn lowered the premium to NAV. But it's still much higher than it should be and they face all the same problems they did when my analysis was conducted a month ago. I want to keep this to a relatively small weight in the portfolio. The net position exposure (MSTR Short - BTC Long) is at a 2% weight and I would really like it to stay that low. I'm confident In my analysis but know there is a great deal I don't understand about the ecosystem orbiting around MSTR. I'm looking forward to seeing how this trade progresses over the summer and returning with my thoughts to Silver Fund in the Fall.