MicroStrategy’s revenues have barely increased in the last decade, from $455 million in 2010 to $486 million last year. However, the company ended 2019 with $566 million in cash. Even after buying $425 million worth of bitcoins in 2020 and a $61 million share buy-back, MicroStrategy still has $53 million left, The Wall Street Journal (WSJ) reports.
MicroStrategy shares became one of the most profitable investments during the technological boom of the late 1990s (up 567% in 1999). The following year, the company lost more than 90% due to an investigation by the US Securities and Exchange Commission (SEC).
Three managers, including CEO Michael Saylor, settled allegations of financial reporting fraud with the SEC. As part of the agreement, the directors did not acknowledge or deny the allegations.
In an interview for WSJ, Saylor refused to discuss the case.
MicroStrategy has never returned to its former glory. From the IPO in June 1998 until the end of 2019, the return on shares averaged 1.4% per annum. During the same period, the S&P 500 grew by 7.2%.
But in 2020, everything changed. In August, when MicroStrategy announced its investment in Bitcoin, its shares jumped 9% per day. A month later, the company announced that it would invest most of its reserves in bitcoin. Shares rose by 23% in two days.
At its peak on 23 October, the company’s shares doubled from a low in early March.
Saylor argues that the main purpose of buying a bitcoin was not to stimulate stock growth but to maintain the company’s purchasing power.
Thanks to massive Federal Reserve intervention in the economy, the U.S. money supply is growing rapidly – according to WSJ, this year it has grown by more than 20%. Saylor expects that this rate will be maintained at 10% or 15% per year, not only in the US, but also globally.
“We realized that cash is rubbish,” he said. “And we needed to convert our money into something that would float rather than sink into a stream of liquidity”.
According to Saylor, the number of bitcoins is limited to 21 million, so the digital currency will never be ‘devalued’.
When asked if Saylor was nervous about investing most of the company’s capital in such a volatile asset, he said: “Why should I be nervous? I would be nervous if I had $500 million in cash because I think it would drop [in purchasing power] to zero in five years. What choice did I have? I believe that bitcoin is better than gold as a means of saving.
“Nothing is perfect, there are risks. But I can’t find anything better, and doing nothing is a more risky option,” he added.