You are the CEO of the company with the largest corporate Bitcoin holdings, $57 billion.
We took a business in 2020 that was worth about a billion to a business now that's worth $55 to $60 billion. 55 to 60x in 6 years.
That's crazy. For years, the message from the strategy was simple: we will never sell the Bitcoin. Then this year, we have sold some Bitcoin, right? This notion of never selling your Bitcoin is, I would say, a good marketing notion.
In simple words, it's like buying high and selling low. How would you describe it to a normal person?
Whether I'm buying Bitcoin at 60,000 or 120,000, it's still accretive.
Take me to the room where this discussion was made and how did you finalize this decision?
Mike sat me down and he said, 'Phong, you know, I have a serious conversation to have. Don't say yes or no. I just want you to go do some research.' The how is not easy because we were the first company to ever do it.
Critics like Peter Schiff and others have described it as a pyramid.
So is it a pyramid? Bitcoin goes down 50%, which it has done since October. MSTR goes down 75%. Of course, I don't like hearing that someone's lost 75%.
One-sentence scenario you think actually can break strategy.
If Bitcoin fails, our strategy will fail. I believe by 2030 Bitcoin can surpass a million dollars.
Like the biggest company in the world, bigger than Nvidia, Meta, Google.
Yeah. Biggest in the world.
Nice to meet you, Joel. How are you doing?
I'm doing great. How are you?
I'm doing great, too. Where are you joining from?
I'm right outside Washington, DC, Northern Virginia.
Okay. This one I'm very much excited about. And before we get into all the serious stuff, I want to know—I saw your earning calls. It's super fun. Like it's you rapping, the music and memes and everything. Whose idea was it?
Oh, that's just somebody on X doing that, a follower. He did the memes and stuff and we thought it was fun. So we retweeted. The quarter was rough, but the SaaS per share rose. They saw us selling. Everybody froze. 32 coins just to test the machine. 0.004%, barely seen.
Damn. It's very different. You are running one of the most serious companies in Bitcoin, right? And seeing this one side, it's super cool. I think it will connect to more Gen Z and young audience. That's, you know, like Bitcoin is cool,
investing is cool, right? It doesn't have to be a bunch of old men like me. And so the more—and I think people are starting to realize that there's a way to create value, right? And it doesn't have to be secret. It doesn't have to be you have to work for a big bank in New York or have access to private equity. It should be for everybody.
Okay, let's go into the facts. You are the CEO of the company with the largest corporate Bitcoin holding and it's currently valued right now at $37 billion and the holdings of Bitcoin you have is $57 billion. It means that people can buy the company for less than what's in it. So what's the reason behind this valuation gap according to you?
Yeah. Well, let's start with a couple things, right? The market capitalization of a company is not the true valuation of a company. The valuation of a company is the enterprise value, right? And the enterprise value typically defined as—there's different ways to calculate it, but a simplistic way to think of it is the market capitalization of the company, that's the equity value, plus the value of the debt on the balance sheet, in which case we have about 6.5 billion, plus the value of our preferred, minus our cash. Right? That's a very simple way of valuing the company. In that case, we're worth about $58 billion, right? On a Bitcoin holdings of about 55 billion. So, the enterprise value is actually greater than the Bitcoin value of the company. So that would be to me the more, I would say, pure financial way to look at valuation.
Okay. So, what could be the reason behind this valuation gap?
Well, the reason that we're not worth more, right? So first of all, again, a traditional financial way to look at it is over time a company should be valued the enterprise value equal to the asset value, right? So the price equal to the book value of the company, right? And in that case, so the question I think is why would we potentially trade at more than the asset value? And that's really then based on people's belief that we can add more asset value or grow more over time, right? And how do we grow, right? We grow in our world by adding more Bitcoin, right, per share, right? So, can we add more Bitcoin to our balance sheet without diluting the shareholders? And we've proven the ability to do that. We've added more Bitcoin per share at different paces. Sometimes we've grown Bitcoin per share 10%, sometimes we've grown at 70%. So it's that growth in Bitcoin per share is not much different than a traditional company growing their earnings per share. And if a traditional company shows they can grow earnings per share over time, then they get valued more.
Okay, got it. And for the person who is listening to you for the first time and learning about MSTR strategy, what's the actual business model? People know you like in the back days known for your software. Right? Now you're known for Bitcoin. So what's the actual business model behind?
So we have two businesses, right? In 1989, Michael Saylor founded the strategy analytics business, business intelligence. So we invented that space, right? Business intelligence, analytics on the web, on mobile devices. We invented those categories and by 2020 it had about 500 million in revenue. And we had about 350 to 400 million was recurring revenue, right? And it was growing 2-3% a year, earning about, call it, 15% margins, right? Cash flow margins about $75 million and that business is worth about a billion dollars, okay? So that was the traditional business that still exists. We've actually transitioned a lot of that business to the cloud now so the ARR is higher, the health of the business is higher. Last quarter we grew cloud by about 55%, we grew the revenue 7% overall. Let's say that business is now valued not at 1 billion but $2 billion, right? Our other business which comprises the other 55 billion, let's say, of our enterprise value is adding Bitcoin to the balance sheet in an accretive manner by growing Bitcoin per share and that business, call it, worth 55 billion. So those essentially are our two businesses. So we took a business in 2020 that was worth about a billion dollars to a business now that's worth 55 to 60 billion.
That's crazy. 55 to 60x in six years which is, as you know, fairly unheard of growth. And so now what led to that decision, right? Go back to we were a software business with about $500 million in revenue, about $600 million of cash on our balance sheet, right? Which is a fairly conservative way to run your balance sheet. So you think about what people think of us today, right? This entrepreneurial innovative company that has transitioned their balance sheet to Bitcoin. We were the opposite in 2020, right? Very conservative because we wanted to have that balance sheet and that cash for whatever we might want to do with it, right? So, we initially held it in short-term securities, right? So, T-bills and money markets which at that point in time at the beginning of 2020 were earning about, call it, 2 and a quarter percent. Right? Today, they're earning about 3 and a half to 4%. Depending on what the securities you're holding, right? What instruments you're holding. So we're earning 2 and a quarter percent. Now as you all remember first quarter of 2020 was when COVID hit, right? And when COVID hit the US and then the governments around the world did a couple of things. They took the short-term interest rate to zero to help stimulate and grow the economy, right? There was no worries of inflation at that point in time. In fact, it was the opposite. The economy had stopped right all around the world. So they took the interest rate to zero. So we weren't earning 2 and a quarter percent. We were earning zero on our 600 million. Right? The second thing that the governments did all around the world including US and US on a 20 trillion monetary supply printed about $5 trillion over the course of 9 months in the form of government stimulus to accelerate the economy, right? And so when you take a $20 trillion monetary supply, you print $5 trillion, you're essentially making every single dollar worth 25 cents less, right? And so the 600 million now is essentially worth $450 million. So to us, our most important strategic asset, the cash in our balance sheet was earning zero and worth 25% less. And so the conversation, the existential conversation Mike and I had with the board is what can we do to utilize the strategic asset to grow the business? Keeping it in cash didn't make sense, right? Could we invest it in something? Right? And the ideas that came to us are very traditional ideas. Buy a company, invest it in stocks, invest it in bonds, invest it in gold, invest it in real estate. Those are your traditional things. We're a tech company. We're an entrepreneurial, innovative tech company that does new and interesting things. And so Mike had the idea that, you know, came from folks that he had talked to about Bitcoin. And so what happened is I remember he sat me down and he said, 'Phong, you know, I have a serious conversation to have. Don't make any, you know, don't say yes or no. I just want you to go do some research.' And I spent about 48 hours did some research on the topic. And I came back and I said, you know, this is interesting. Let's go further. Further was then figuring out, you know, talking to some of our advisors, bankers, accountants, understanding from our board and other people around us is this something we should do and then how do we do it, right? And the how is not easy because we were the first company to ever do it.
Like you were the first one to do this and you inspired the whole industry, right? Right now there are many Bitcoin treasury companies. So this is what innovation looks like especially in tech and I really like that you didn't follow the traditional path of bonds or in general you discovered something new and the world followed you. Now we got a really great idea how this got started. Recently, like for years the message from the strategy was simple: we will never sell the Bitcoin. Then this year we have sold some Bitcoin, right? Take me to the room where this discussion was made and how did you finalize this decision?
Yeah, you know, this notion of never selling your Bitcoin is, I would say, a good marketing notion. And if you're going to, as an individual, hold Bitcoin for eternity or hold it for your children or hold it for retirement, it makes sense not to sell your Bitcoin, right? And so for the individual investor, there are a lot of reasons why you will sell other assets, dollars, equities, heck, MSTR, right? A house, a car before you sell your Bitcoin because you're not going to sell the best performing asset over time, right? You're going to sell the lesser performers, right? And that's just sort of a general statement. There's a lot of nuance and detail depending on the individual. So the never sell your Bitcoin makes sense in that case, right?
For us as a company, right, Bitcoin is seen as the asset and the collateral behind our debt, right? And our preferred structure, right? So this is our convertible notes and our preferreds and in that particular case if it's seen as the asset underlying the company, right, first our debt at the top, our preferreds, and our common shareholders, then for that asset to be credible especially for the more senior ones you have to be willing to sell it. In fact, we got that feedback, right? And so we were never going to run this company from my point of view and I think Mike would agree with the perspective that we never sell MicroStrategy or Strategy's Bitcoin, right?
Like definitely that's a very important part. But I see this from a very normal person's perspective. We like Strategy bought Bitcoin around like technically $75,000 on an average. Okay. And right now Strategy is selling like at lower prices. So it's in simple words it's like buying high and selling low. How would you describe it to a normal person?
To a normal person my description is every trade we make is evaluated on a trade-by-trade basis. Right? So for example, when we issue equity, right, that is, call it, greater than the asset value of the company, 2x, right? So if our stock is $100 and we're at 2x that means the first $50 that we issue, right, is one-for-one parity to our common shareholder, the next $50 on top of that is fully accretive to our shareholder, right? So that's point number one. So we issue at 2x MNAV and we go turn around and buy Bitcoin at market value that is fully accretive to our shareholder on a transaction basis regardless of the price of Bitcoin, right? And so if you think about it that way, right? So it's the particular trade selling MSTR buying Bitcoin that matters, not the price of Bitcoin itself. It's the relative price of those two items, right? If that makes sense. It's sort of like if you have a house and you want to get another house, right? How much you buy the new house at, right, is not as important as how much the relative amount you're able to sell the current house for to the new house, right? Like if today your current house is 500k and your new house is a million, right? That's the value. If somehow you're able to find a seller to buy that current house at a million, twice its value, then it makes sense for you to buy that new house at 1.25 million, not a million, right? So it's a relative trade that matters at every point in time.
Okay. So now what's the plan? Like when are you looking to start buying again and what's the level you are looking for? Any price range?
No. And obviously I can't be very specific about when we're going to buy again. But our decisions are when it's accretive to the company, right? And so if we're trading at a certain amount above asset value, it makes sense to sell MSTR to buy Bitcoin, right? The most accretive thing, by the way, is to sell a preferred STRC to buy Bitcoin, right? And so when we get STRC back up to $100, it would be accretive to sell STRC to buy Bitcoin.
