A summary of MicroStrategy's Bitcoin purchasing journey and financial status

Author: Joey Wu, 吴说

1. Bitcoin Purchase Journey

On December 9, 2020, MicroStrategy purchased 29,646 bitcoins for approximately $650 million in cash, at an average price of about $21,925. By this point, MicroStrategy held a total of 70,470 bitcoins, with a total cost of about $1.125 billion and an average purchase price of about $15,964.

On February 17, 2021, MicroStrategy purchased 19,452 bitcoins for approximately $1.026 billion in cash, at an average price of about $52,765. By this point, MicroStrategy held a total of 90,531 bitcoins, with a total cost of about $2.171 billion and an average purchase price of about $23,985.

On June 8, 2021, MicroStrategy purchased 13,005 bitcoins for approximately $489 million in cash, at an average price of about $37,617. By this point, MicroStrategy held a total of 105,085 bitcoins, with a total cost of about $2.741 billion and an average purchase price of about $26,080.

On June 14, 2021, MicroStrategy entered into a public market sales agreement with agent Jefferies LLC to issue up to $1 billion of common stock through Jefferies on a continuous basis. By this point, MicroStrategy held a total of 114,042 bitcoins, with a total cost of about $3.16 billion and an average purchase price of about $27,713.

On December 9, 2021, MicroStrategy announced that it had purchased an additional 8,436 bitcoins in the fourth quarter, at a total cost of $496 million, with an average price of about $58,748. By this point, MicroStrategy held a total of 122,478 bitcoins, with a total cost of about $3.66 billion and an average purchase price of about $29,861.

On December 30, 2021, MicroStrategy announced that it had purchased an additional 1,914 bitcoins for approximately $94.2 million in cash, at an average price of $49,229. By this point, MicroStrategy held a total of 124,391 bitcoins, with a total cost of about $3.75 billion and an average price of $30,159.

From December 31, 2021, to January 31, 2022, MicroStrategy purchased 660 bitcoins for $25 million, at an average price of $37,865. The company currently holds 125,051 bitcoins, with an average price of $30,200.

On June 29, 2022, MicroStrategy announced that it had purchased an additional 480 bitcoins for approximately $10 million, at an average price of $20,817. By this point, MicroStrategy held 129,699 bitcoins valued at $3.98 billion, with an average price of $30,664.

MicroStrategy announced that from August 2 to September 19, it acquired approximately 301 bitcoins for about $6 million in cash, at an average price of $19,851. By this point, MicroStrategy held 130,000 bitcoins, with an average purchase price of $30,639, having spent a total of $3.98 billion.

From November 1 to December 24, 2022, MicroStrategy purchased 2,500 bitcoins, bringing its total to 132,500 bitcoins, with a total purchase price of about $4.03 billion and an average of about $30,397 per bitcoin.

From February 16 to March 23, 2023, MicroStrategy purchased 6,455 bitcoins for approximately $150 million in cash, at an average price of about $23,238. By this point, MicroStrategy held approximately 138,955 bitcoins, with an average purchase price of about $29,817.

On April 4, 2023, MicroStrategy purchased 1,045 bitcoins at an average price of $28,016, totaling $29.3 million. By this point, MicroStrategy held 140,000 bitcoins, with an average purchase price of $29,803, amounting to about $4.17 billion.

2. Debt Situation

As of March 2023, MicroStrategy has approximately $2.2 billion in long-term debt, detailed as follows:

2025 Convertible Notes

On December 9, 2020, MicroStrategy announced the issuance of convertible senior notes with a total principal amount of $650 million, consisting of $550 million in convertible bonds and $100 million in options, with a conversion date averaging December 15, 2025. The convertible bonds have a coupon rate of 0.75%, with interest paid semi-annually. The conversion price is approximately $397.99 per share, representing a premium of about 37.5% compared to the closing price of $289.45 for common stock on December 8. The notes cannot be converted into stock before June 15, 2025, unless a "fundamental change" as defined in the agreement occurs. A fundamental change refers to the company no longer being listed on NASDAQ or the New York Stock Exchange, being merged or acquired, or a change in majority ownership. If any of these events occur, MicroStrategy may be required to repay the loan in full. Given that CEO Michael Saylor holds over two-thirds of the voting power, this possibility is unlikely.

2027 Convertible Notes

On February 17, 2021, MicroStrategy announced the issuance of convertible senior notes with a total principal amount of $1.05 billion, consisting of $900 million in zero-coupon convertible bonds and $150 million in options, with a conversion date averaging December 15, 2027. The conversion price is approximately $1,432.46 per share, representing a premium of about 50% compared to the closing price of $955.00 for common stock on December 8. These notes cannot be redeemed before August 15, 2026, unless a "fundamental change" as described in the agreement occurs, similar to the previous terms.

2028 Senior Secured Notes

On June 8, 2021, MicroStrategy announced the issuance of junk bonds with a total principal amount of $500 million maturing in 2028, with a coupon rate of 6.125%, paying interest semi-annually, requiring interest payments of $15.3125 million every June 15 and December 15.

2025 Mortgage (Partially Repaid)

On March 29, 2022, MicroStrategy's subsidiary MacroStrategy announced a $205 million bitcoin-backed loan with Silvergate Bank to purchase bitcoins, maintaining a collateral ratio of 200%, requiring $410 million as collateral, thus liquidation would only occur if the price fell below $4,000.

Debt Repayment Situation

According to documents submitted by MicroStrategy to the SEC, since reaching an agreement with underwriter Cowen and Company in September 2022 to sell up to $500 million in common stock, it has sold 218,575 shares of Class A common stock, generating approximately $46.6 million in total proceeds. The net proceeds from this issuance are intended for general corporate purposes, including acquiring bitcoins and working capital, and, depending on market conditions, repurchasing the 0.750% convertible senior notes maturing in 2025 and the 0% convertible senior notes maturing in 2027, as well as repaying debts with Silvergate Bank.

On March 24, 2023, MacroStrategy and Silvergate entered into an agreement, allowing MicroStrategy to repay its $205 million loan at a 22% discount, prepaying approximately $161 million and reclaiming 34,619 bitcoins that had been pledged as collateral.

3. Financial Health Status

In summary, MicroStrategy currently holds 140,000 bitcoins at an average cost of $29,803; long-term debt of approximately $2.2 billion, with annual interest of less than $50 million (total interest for 2022 was $53 million, and due to partial repayment, this year's interest expense will be less than last year's).

Of the four debts, the convertible notes maturing in 2025 and 2027 (totaling $1.7 billion) have only repaid about $46.6 million, while the mortgage maturing in 2025 (totaling $205 million) has repaid at least $161 million, and the junk bonds maturing in 2028 have not yet been repaid.

MicroStrategy's 2022 annual report shows an EBIT of -$1.276 billion for the year, which includes impairment losses on digital assets (net of sales gains), with the impairment loss amounting to $1.286 billion. Excluding this unrealized loss, the EBIT is $10.54 million (with $3.91 million in the fourth quarter), a significant decrease compared to $46.09 million in 2021. It is evident that relying solely on core operating income is insufficient to cover annual interest; however, the company currently holds nearly $43.84 million in cash and cash equivalents, so there will not be a debt crisis at least in 2023.

Moreover, even if the company cannot pay interest, it can sell a small amount of bitcoins or company equity. On December 22, 2022, MacroStrategy sold approximately 704 bitcoins at an average price of about $16,776, generating approximately $11.8 million in cash. This was the first sale of bitcoins since they were added to the balance sheet, which may result in tax benefits. Thus, selling a small amount of bitcoins to cover interest is not impossible. Assuming bitcoin maintains a price of $15,500 over the next two years, only 3,400 bitcoins would need to be sold in 2024 to cover the interest. Therefore, MicroStrategy is unlikely to face bankruptcy before the debt matures, and as long as the bitcoin price reaches around $30,000 before March 2025, MicroStrategy can essentially break even (it is currently at breakeven).

Note: Recently, the Financial Accounting Standards Board (FASB) proposed new standards regarding crypto assets, suggesting that crypto assets be measured at fair value. The current accounting standards under U.S. GAAP treat crypto assets as "indefinite-lived intangible assets," requiring impairment provisions when prices fall, with losses recorded in the income statement, and prohibiting subsequent reversals of impairment losses. In other words, companies can only report declines in the value of their crypto assets and cannot report increases until they sell the crypto assets. This is based on the principle of conservatism but does not reflect the true value of crypto assets.

If FASB's proposal is approved, crypto assets will be measured at market prices, which could significantly enhance MacroStrategy's book net profit. This article also deducted impairment losses on crypto assets when calculating EBIT.