ACCOUNTING FOR THE PERFORMANCE OF MICROSTRATEGY F irst decomposition

Abstract

Since 2020, MicroStrategy (MSTR) has defied critics and corporate finance pundits alike by adopting an unconventional yet highly effective Bitcoin Yield strategy. The significant issuance of shares, bonds, and convertible instruments led to a substantial increase in its Bitcoin holdings per share and delivered outsized rewards to its investors. Over the 2021-2024 period, its stock price significantly outperformed Bitcoin, growing 7.5x versus 3.2x despite a stable Ratio Premium (dollar premium relative to the value of its Bitcoin holdings). We provide an exact decomposition of these rewards into three sources. First, the monetization of a significant part of the pre-existing premium into book value. Second, taking advantage of the performance of Bitcoin to which it has a growing exposure, and finally being subject to the variations in its Bitcoin Price Premium (dollar premium per Bitcoin held). As such, the performance of MSTR cannot be summarized solely by the variations in its Bitcoin holdings and Ratio Premium. Our decomposition explains why, despite an unchanged Ratio Premium between end-of-year 2020 and end-of-year 2024, MSTR has substantially outperformed Bitcoin. This suggests an investment thesis on successful Bitcoin Treasury Companies (BTC) for investors anticipating further Bitcoin growth, or on similarly successful strategies adopted by other companies trading at a premium.