MicroStrategy (MSTR +2.89%) founder and chairman Michael Saylor started selling stock in his own company in early January, culled from his portfolio of stock options. Astute investors may have noticed that the sales have been very consistent and are still going on today.
Even keener observers, of course, saw this process coming from a mile away -- actually, from early November 2023. They also know how long Saylor's sales will go on, and why he is doing it.
In case you missed the early hints, here's why Michael Saylor is converting a massive lot of stock options into MicroStrategy shares, only to sell them immediately on the open market. Spoiler alert: Saylor has not lost faith in his data analytics business. He simply wants to buy some Bitcoin (BTC +5.72%) for himself.
NASDAQ: MSTR
Key Data Points
Why Saylor is selling his converted stock options
This is not a guess. Saylor stated his plan to execute some of his stock options in 2024 and then sell the resulting shares on the grand stage of MicroStrategy's third-quarter earnings call in November:
I was granted a stock option in 2014 with respect to 400,000 shares, which is going to expire next April if I don't exercise it by then. For almost a decade now at my request, the company has only paid me a $1 salary, and I've chosen not to be eligible for any cash bonuses. Exercising this option will allow me to address some financial obligations, as well as to acquire additional Bitcoin for my personal account.
Those options were about to expire at the end of April anyway, so why not convert them into some cash and a lot of Bitcoin? After all, that's exactly what Saylor has been doing to most of MicroStrategy's cash in recent years.
Saylor went on to explain his trading plan in some detail. As stated on that call and in the regulatory filings that followed, Saylor is converting 5,000 stock options into MicroStrategy shares on every day between Jan. 2 and April 25. This slow and steady approach minimizes Saylor's impact on MicroStrategy's daily trading patterns and volumes. It's a patient and responsible way to take advantage of the only significant compensation MicroStrategy has issued to Saylor in the last decade.
CRYPTO: BTC
Key Data Points
The story behind Saylor's stock option play
It should be said that Michael Saylor has a history of controversial business practices. The block of 400,000 stock options was set up to placate activist investor group Apex Capital in 2014. The firm argued that Saylor -- CEO at the time -- was spending too much time on his yachts and golf courses, paying insufficient attention to MicroStrategy's management.
With a strictly symbolic annual paycheck, no bonuses for the next decade, and a huge block of stock options to his name, Michael Saylor's objectives were strictly aligned with those of common shareholders. The only way to make money under this structure was to increase MicroStrategy's stock value over time.
This options-based structure wasn't looking good in 2020. By midsummer that year, MicroStrategy's stock price was down 5% from the start of 2014. Saylor's 400,000 stock options were worth a grand total of $47 million that summer. It's hardly a beggar's ransom, but also far from the stellar returns expected by the CEO of a successful software business over nearly seven years.
Later that summer, Michael Saylor invested $250 million of MicroStrategy's cash in Bitcoin, calling the cryptocurrency "a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash." MicroStrategy's stock price more than tripled between July 1 and New Year's Eve, right alongside a similar surge in Bitcoin prices.
Bitcoin has been good to Michael Saylor over the years. At today's share prices, those 400,000 options are worth approximately $159 million. That should be more than enough to settle Saylor's golf club premiums, put a fresh coat of paint on every yacht, and boost his personal Bitcoin exposure significantly.
Bitcoin transformed Saylor's fortunes -- should you follow suit?
Michael Saylor's stock-option settlement worked out in his favor thanks to a bold Bitcoin bet. The man looks like a genius when the largest cryptocurrency is on the rise, but not so much during crypto winters and other market downturns. If those options had expired one year earlier, forcing him to execute the conversion plan in the spring of 2023, MicroStrategy's and Bitcoin's average prices were about half of what they are today.
My takeaway from Michael Saylor's Bitcoin adventures is not that my entire net worth should be converted into Bitcoin today. Rather, I see the upsides of a successful crypto strategy next to the downsides of more challenging periods. If anything, I'm inspired to take my hands off the Bitcoin wheel for a while (apart from moving my Bitcoin ETF holdings into a different vehicle, as I disclosed last week) and wait for the next crypto winter before increasing my crypto bets.
I respect the longtime Bitcoin advocate's deep devotion to the cause, but he isn't my favorite role model by a long shot. Saylor rides the Bitcoin roller coaster with gusto, but for those of us watching from the ground, it's a clear signal to diversify our tickets and enjoy a steadier ride.
That's why my Bitcoin investments are a small portion of my total nest egg, and why master investor Warren Buffett wouldn't touch the digital currency with a 10-foot pole.
