Normally, a $21 billion equity offering by a company only worth just over double that amount would tank the issuer's stock price. But the economics around corporate America's biggest bitcoin bull are different.
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Michael Saylor's MicroStrategy, whose stock price has tripled this year, topped Coinbase (COIN) as the biggest crypto stock.
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MicroStrategy is up Thursday even after the company's massive plan to sell $21 billion of new shares — a plan that would likely drive down most other companies.
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"MicroStrategy shareholders are a unique cohort. Typically, when shareholders get diluted, this is a bad thing," said CoinDesk senior analyst James Van Straten.
In Michael Saylor's world, conventional economics seem to operate in reverse. He's transformed MicroStrategy, once a relatively obscure software firm, into corporate America's largest bitcoin (BTC) advocate, amassing an impressive reserve of the cryptocurrency.
On Wednesday, MicroStrategy revealed plans to issue and sell $21 billion of its own stock—a move that, for most public companies, would likely spell trouble for existing shareholders. With a market cap of about $50 billion at the time of the announcement, this new stock issuance implies a roughly one-third dilution of current ownership stakes, which could easily drive down the stock price by around 33%.
Yet MicroStrategy and its devoted following stand apart from the norm. Its stock price rose about 1% on Thursday, following a year-to-date surge that more than tripled its market cap, placing it above Coinbase (COIN), which previously held the largest market cap among crypto stocks but saw declines after a disappointing Q3 report. MicroStrategy, whose value often moves in tandem with Bitcoin’s due to its substantial holdings, even gained ground as BTC’s price dropped.
The rally in MicroStrategy’s stock, said Joe Consorti, head of growth at Theya, “reflects investor confidence in the firm’s accretive dilution strategy for bitcoin.” By tapping capital markets to buy bitcoin—issuing shares to raise funds and investing in bitcoin—MicroStrategy effectively increases shareholder value through this accretive strategy.
The stock sale is structured as an at-the-market (ATM) equity offering, which allows companies to sell shares directly at market prices. It’s a flexible way to raise capital compared to traditional secondary offerings. This particular ATM deal is, in fact, the largest on record, quadrupling the size of any previous offering of its kind, according to Bloomberg data.
MicroStrategy shareholders appear willing to accept this dilution without demanding a substantial discount, reflecting their trust in Saylor’s approach. "MicroStrategy shareholders are a unique group. In most cases, dilution is unwelcome,” noted James Van Straten, senior analyst at CoinDesk. "But as a MicroStrategy shareholder, I welcome dilution because I know it means MicroStrategy is acquiring more bitcoin, effectively increasing the bitcoin per share and, in turn, enhancing shareholder value."