Key Takeaways
- Strategy shares fell after MSCI said it will remove the company from its global indexes after the November 30 close.
- Strategy says MSCI-tracking funds hold about 13 million shares, while JPMorgan has estimated up to $8.8 billion of outflows if other index providers follow.
- Strategy raised $21.23 billion this year, mostly by selling stock, so losing passive buyers threatens how it funds bitcoin.
- Preferred dividends tripled to $419.6 million last quarter, and weekly filings after November 30 will show whether stock sales still pay for bitcoin.
Strategy (MSTR) shares fell 2.5% in after-hours trading Wednesday after MSCI (MSCI) said it will drop the company from its global indexes. The stock kept sliding Thursday as bitcoin weakened.
MSCI decided that Strategy looks more like an investment fund than an operating business. Japan’s Metaplanet (3350.T), another bitcoin treasury company, is also leaving MSCI’s indexes, along with UK uranium holder Yellow Cake.
The timing stings. Less than two weeks earlier, Executive Chairman Michael Saylor said in the third-quarter release, “We’re at the beginning of the next bitcoin bull market.”
Index providers don’t care much about bull markets, though. They care about what a company actually does.
MSCI rules against the treasury model
MSCI first proposed excluding companies whose digital assets make up half or more of their total assets. It then widened that into a review of non-operating companies, and Strategy failed it.
Here is what the decision means in numbers:
- Removal from the MSCI USA and MSCI World indexes takes effect after the November 30 close.
- Strategy says MSCI-tracking funds hold about 13 million shares, or 3.1% of its basic shares outstanding.
- JPMorgan has estimated about $2.8 billion of outflows, and up to $8.8 billion if other index providers follow.
Strategy saw this coming and spent months lobbying MSCI to drop the rule.
The selloff also eats into a big run. Shares rose 76% in the third quarter, far ahead of bitcoin’s 43% gain…
That leverage works in both directions, and right now it is working against shareholders.
Stock sales fund the bitcoin
Why does index membership matter so much? Strategy pays for its bitcoin mostly by selling new stock and preferred shares.
It raised $21.23 billion of capital this year through October 25. Its at-the-market program alone brought in $5.41 billion of net proceeds in the third quarter.
That machine runs best when buyers pay up for the shares. Passive funds were steady holders, and after November 30 they will be gone.
Every one of those raises adds to the share count:
Still, the issuance has not kept pace with the bitcoin it bought. Strategy’s BTC Yield was (3.7)% for the year through October 25, so bitcoin per share actually shrank.
TIKR tracks 16 analysts on Strategy. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Strategy, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Strategy’s Analyst Ratings
Dividends raise the stakes
The software business barely moves the story. Revenue fell 3% to $125.4 million in the third quarter, while gross margin edged up to 71%.
A $20.91 billion gain on bitcoin drove record diluted EPS of $44.75, up from $8.42 a year earlier. Yet those gains reverse quickly. On October 23, bitcoin at $81,200 sat just 7.6% above Strategy’s $75,446 average cost.
Meanwhile, the fixed bills keep growing. Preferred dividends tripled to $419.6 million in the third quarter from $139.9 million a year earlier. Finance leadership is changing too, since CFO Andrew Kang stepped down on November 5.
So how deep is the cushion?
Cash and short-term investments reached $5.9 billion at September 30. Strategy says its USD assets cover 3.4 years of dividends and interest, but it also sold $431.8 million of bitcoin this year to help fund dividends and STRC buybacks.
My take: The forced selling looks manageable at roughly 3% of shares. The bigger cost is a thinner pool of natural buyers for a company that must keep issuing stock. I’d want proof that Strategy can fund new bitcoin without draining its cash reserve before calling this dip a bargain.
The November 30 close is the first test. After that, Strategy’s weekly Monday filings will show whether fresh stock sales are still paying for bitcoin.
So what is Strategy stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
