The Flaw With Strategy’s Stock-Selling Merry-Go-Round

You can always rely on Michael Saylor and the folks at Strategy to blaze new trails in corporate finance. Take Strategy’s announcement today that it had raised $1.44 billion by selling shares to—get this—establish a “USD reserve” to pay the $689 million it owes annually in dividends on its stock and interest on its debt. Usually companies try to pay both out of cash they generate from their businesses. But Strategy’s only functioning business—a small enterprise software operation—isn’t a reliable moneymaker. The company’s reported profit is mostly made up of unrealized gains and losses on bitcoin—in other words, it’s not real.

To boost its cash reserves, Strategy could have sold some of its 650,000 bitcoin, currently worth $56 billion. But seeing as bitcoin prices are in freefall right now, any move to unload some of those holdings could be ugly. Instead, the company is turning to the stock market, as it has done already this year (several times) when it was raising money for bitcoin purchases. Of course, things were different just a few months ago. As my colleague Yueqi Yang wrote recently, Strategy’s stock in May was worth twice the value of its bitcoin, allowing it to buy $200 worth of the crypto asset by issuing $100 worth of shares. That was great while it lasted, but it’s over.