Shares of enterprise software company MicroStrategy (MSTR 3.38%) jumped 26.8% in December, according to data provided by S&P Global Market Intelligence. While the company technically has an enterprise software business, it's become more of a holding company for cryptocurrency Bitcoin (BTC -2.52%) in recent years. And Bitcoin is why MicroStrategy stock is up.
In the first place, the price of Bitcoin was up nearly 12% in December. It was a nice finish to a year in which the price increased 154%.
For its part, MicroStrategy owned nearly 175,000 Bitcoins at the start of December, the value of which increased nearly 12% for the month, boosting the stock price. However, the company also bought an additional 14,620 Bitcoins during the month, increasing its holding by around 8%.
The higher price and the increased holdings are why MicroStrategy stock was up.
Where did all that money come from?
Acquiring 14,620 Bitcoins cost MicroStrategy a whopping $615.7 million in cash. And as the chart below shows, that's more than the cash produced by the company's business operations over the last five years combined.
MSTR Cash from Operations (TTM) data by YCharts
To fund its purchases of Bitcoin, MicroStrategy sold shares during December. It was authorized to sell up to $750 million in stock, according to a filing in November. It sold $610.1 million in stock in December, leaving nearly $140 million in authorization at its disposal.
Looking ahead
Given its history, it wouldn't be surprising to see MicroStrategy take advantage of its remaining authorization to sell more shares, presumably to buy even more Bitcoin.
When MicroStrategy started acquiring Bitcoin, it was presented as its balance-sheet strategy. Instead of holding cash, it decided to hold Bitcoin. I believe this approach is unconventional but reasonable. The company's leaders believe that cash is losing value due to inflation and that Bitcoin is increasing in value due to adoption.
Many investors likely disagree, but that's beside the point. These are the core beliefs of MicroStrategy's leadership. Therefore, it's reasonable for the company to hold Bitcoin instead of cash.
However, Bitcoin has become far more than a balance-sheet strategy for MicroStrategy, as is evidenced by its actions in December. The company is raising money it doesn't have from investors to invest in Bitcoin.
Investing in Bitcoin as a corporate strategy is a different proposition altogether. Many companies, such as Warren Buffett's Berkshire Hathaway, make long-term investments. But stocks often earn profits, pay dividends, and have real-world book value -- that's quite different from investing in a currency.
I believe Bitcoin is in for a great year in 2024 and that would be good for MicroStrategy stock considering it holds over 189,000 Bitcoins now. But for me to feel comfortable investing in MicroStrategy stock, I'd need to hear a long-term plan that extends beyond simply buying as many as Bitcoins as possible.
