WEBVTT - MicroStrategy's Michael Saylor on Incoming Administration, Raising Capital

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Micro Strategy still buying

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<v Speaker 1>bitcoin amid the tokens record run. It's bought the digital

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<v Speaker 1>currency for six straight weeks, bringing its total haul to

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<v Speaker 1>forty five billion dollars. That's all before micro Strategy joins

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<v Speaker 1>the Nasdaq one hundred index next week. Now, the company's

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<v Speaker 1>share price is outperforming bitcoin itself this year, as retail

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<v Speaker 1>traders and hedge funds pile in and capitalize on the volatility.

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<v Speaker 1>I'm pleased to say that we're joined now by MicroStrategy

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<v Speaker 1>co founder and executive chairman Michael Sailor, And of course

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<v Speaker 1>we're going to get to the bitcoin purchases, but I

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<v Speaker 1>actually want to start with the politics of it all,

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<v Speaker 1>because you've been relatively less vocal than some of your

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<v Speaker 1>peers in the crypto community about your political views, and

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<v Speaker 1>I have to ask, have you met with President elect

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<v Speaker 1>Donald Trump.

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<v Speaker 2>I've met with a lot of people in the incoming administration,

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<v Speaker 2>but I couldn't comment further than that.

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<v Speaker 1>Okay, I can't comment further than that. I was going

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<v Speaker 1>to ask you about plans, but instead I'll ask you

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<v Speaker 1>about whether or not you would be willing to serve

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<v Speaker 1>in the Trump administration in any capacity. Bloomberg has reported

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<v Speaker 1>that there potentially could be a crypto advisory council. Is

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<v Speaker 1>that something that you might be interested in?

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<v Speaker 2>You know, I'm always willing to provide, you know, thoughts

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<v Speaker 2>on constructive digital assets policy, either in confidence or publicly,

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<v Speaker 2>and if I'm asked to serve on some sort of

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<v Speaker 2>digital assets advisory counseling, probably would do so.

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<v Speaker 3>Yes, Michael, I also want to talk to you about

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<v Speaker 3>micro strategy, your own plans. It's amazing you have announced

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<v Speaker 3>plans to raise forty two billion dollars over three years.

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<v Speaker 3>You announced that back in October. But the rate you're

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<v Speaker 3>going at, and this is through convertable debt offerings as

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<v Speaker 3>stock sales, the rate you're going at, you could fulfill

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<v Speaker 3>that target by January. Are you planning to lift that

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<v Speaker 3>cap and line up more facilities in the pursuit of

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<v Speaker 3>more bitcoin.

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<v Speaker 2>Yeah. When we announced that, it wasn't clear how enthusiastic

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<v Speaker 2>the capital markets would be, but we got a very

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<v Speaker 2>enthusiastic reception. And then after November fifth, with the Red Wave,

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<v Speaker 2>we saw a big sea change in the political environment,

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<v Speaker 2>and so we went faster than we had thought we

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<v Speaker 2>were going to go on October thirtieth. Our goal is

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<v Speaker 2>to is to continue to raise capital primarily through fixed

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<v Speaker 2>income markets. So we'll pursue preferred stock or convertible bond

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<v Speaker 2>or other equity linked financings as long as it's creative

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<v Speaker 2>for our shareholders. When we get through the twenty twenty

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<v Speaker 2>one plan, which is forty two billion in capital, we'll revisit,

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<v Speaker 2>revisit our capital plan, and we'll put in place a

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<v Speaker 2>new plan, subject to market conditions at the time.

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<v Speaker 1>All right, So we'll look forward to that. I am curious,

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<v Speaker 1>you know, with what you've raised so far. It seems

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<v Speaker 1>like you've been tapping the market facility more so than

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<v Speaker 1>converts in order to raise cash, and I'm wondering if

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<v Speaker 1>there's anything to read into that.

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<v Speaker 2>Well, just the equity capital markets were very enthusiastic over

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<v Speaker 2>the past four weeks, and so we're always considering, is

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<v Speaker 2>that the convertible market, is it the fixed income market?

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<v Speaker 2>Is it the equity market we want to go to?

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<v Speaker 2>And that's going to change from time to time. I

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<v Speaker 2>expect that that MAX will shift more heavily toward fixed

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<v Speaker 2>income markets in Q one as we go forward, because

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<v Speaker 2>right now we're probably getting a little bit too de levered,

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<v Speaker 2>and we'd like to actually get more leverage. We have

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<v Speaker 2>about seven point two billion dollars of converts, but four

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<v Speaker 2>billion of the mariority essentially equity. They're through the strike price,

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<v Speaker 2>they're through the call price, and they're trading with a

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<v Speaker 2>delta approximately one hundred percent, So they're looking like equity,

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<v Speaker 2>and so we would like to go back and build

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<v Speaker 2>more intelligent leverage for the benefit of our common stock shareholders.

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<v Speaker 3>Yeah, speaking of common stock, of course, one of the

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<v Speaker 3>big pieces of news is Kitty had talked about was

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<v Speaker 3>your index inclusion and the NASDAQ one hundred and one.

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<v Speaker 3>Big question is would you or are you selling newly

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<v Speaker 3>issued stock to index trackers? Is equity something that you'd

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<v Speaker 3>be looking to add to instead.

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<v Speaker 2>You know, when we execute THEATM, we just sell equity

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<v Speaker 2>into the market. If we like the price and we

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<v Speaker 2>like the terms, and if we think that the equity

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<v Speaker 2>is undervalued, we don't, but we don't specify any particular buyer.

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<v Speaker 2>I think that's just a parapursue to every other investor

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<v Speaker 2>in the market.

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<v Speaker 1>So I want to get a little bit philosophical, because

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<v Speaker 1>you know, we're talking now about Nasdaq one hundred inclusion

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<v Speaker 1>and you're joining, of course, because MicroStrategy is nominally a

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<v Speaker 1>software company. You founded it in nineteen eighty nine as

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<v Speaker 1>a software company. Do you still consider MicroStrategy a software company.

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<v Speaker 2>Well, we have a very healthy software division now and

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<v Speaker 2>we're very proud of it, and I did create it.

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<v Speaker 2>But we also we think of ourself primarily as a

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<v Speaker 2>bitcoin treasury company now, So our primary method of generating

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<v Speaker 2>shareholder value is through our treasury operations. And if you

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<v Speaker 2>think about there's three ways to create value for the shareholders.

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<v Speaker 2>There's operating income, and our software business generates about seventy

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<v Speaker 2>five million dollars a year of operating income. There's also

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<v Speaker 2>investment income that's been difficult to track, but right now

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<v Speaker 2>we have eighteen point six billion dollars of unrealized investment income.

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<v Speaker 2>People will start to get a better handle on that

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<v Speaker 2>when we switch to fair value accounting next year, and

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<v Speaker 2>then you'll actually see investment income captured in gap accounting.

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<v Speaker 2>And then the third way to create shareholder value is

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<v Speaker 2>acquisition income. So when Apple buys back its own stock,

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<v Speaker 2>or when Oracle m and A acquisitions, or when you

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<v Speaker 2>do an LBO, you're basically taking capital which is cheap

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<v Speaker 2>to buy a capital asset which is a higher return.

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<v Speaker 2>So micro strategy is engaged in that capital acquisition process.

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<v Speaker 2>We issue equity and debt, we buy bitcoin. That's resulted

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<v Speaker 2>in about a fourteen point four billion dollar benefit if

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<v Speaker 2>you value the bitcoin at one oh five for our

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<v Speaker 2>shareholders this year, and so we do all three of those.

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<v Speaker 2>Obviously the big numbers, the investment income the acquisition income

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<v Speaker 2>are more due to bitcoin treasury operations.

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<v Speaker 3>Well, I'm glad you bought up the accounting rules in

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<v Speaker 3>particular for this reason because obviously Nasdaq one hundred wondering

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<v Speaker 3>now with the rules around profitability for the S and

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<v Speaker 3>P five hundred inclusion, does that accounting rule get you

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<v Speaker 3>to the place where you think that the S and

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<v Speaker 3>P five hundred comes next for you? And how soon

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<v Speaker 3>do you think you can get there?

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<v Speaker 2>You know? I mean, obviously it's the decision to the

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<v Speaker 2>S and P five hundred is above my pay grade,

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<v Speaker 2>so they will make that decision. But I'm optimistic in

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<v Speaker 2>twenty twenty five, when we adopt fair value accounting, when

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<v Speaker 2>we end up with fifty billion dollars of assets on

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<v Speaker 2>our balance sheet under fair value of bitcoin goes up

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<v Speaker 2>twenty percent a year, you're looking at ten billion dollars

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<v Speaker 2>a year of investment income, So I expect we'll be

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<v Speaker 2>generating billions of dollars a year or tens of billions

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<v Speaker 2>of dollars a year of investment income, which becomes a

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<v Speaker 2>gap profitability. And I think that is the final thing

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<v Speaker 2>people are looking for for inclusion in the S and P.

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<v Speaker 1>And that would certainly be a sign of the times

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<v Speaker 1>if you did get included in the S and P

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<v Speaker 1>five hundred. So we'll have to keep in touch on

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<v Speaker 1>that one. But I want to go back to the

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<v Speaker 1>bitcoin buying and I want to talk about how you

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<v Speaker 1>actually purchase the bitcoin. Are you buying through an exchange

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<v Speaker 1>over the counter, peer to peer? This, of course is

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<v Speaker 1>made more interesting by the fact that obviously you're buying

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<v Speaker 1>in bold.

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<v Speaker 2>We use regulated exchanges in the United States like coinbase,

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<v Speaker 2>and when we're buying, we'll be buying on a simple

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<v Speaker 2>like t WAP algorithm. So our goal is to not

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<v Speaker 2>be noticed by the market, not to move the market.

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<v Speaker 2>If anything happens with a bitcoin price, or even with

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<v Speaker 2>the micro strategy price, it isn't us. Our objective is

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<v Speaker 2>to basically be market participants, but never move it up

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<v Speaker 2>or down or be noticed.

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<v Speaker 3>You know, it's interesting. I want to go back to

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<v Speaker 3>something Katie was talking about before in definitions here are

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<v Speaker 3>your software company or not? But when you think about

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<v Speaker 3>the legacy software business and micro strategy, what role does

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<v Speaker 3>it have, would you consider spinning it off?

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<v Speaker 2>No, we're very partial to it. We love the software business.

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<v Speaker 2>I invented a lot of a large piece of it.

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<v Speaker 2>We love our customers, we enjoy it, it's profitable, and

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<v Speaker 2>it's a core part of the company's ident.

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<v Speaker 1>All right, Well, we're worth asking anyway. I am curious

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<v Speaker 1>about you know, this unique treasury model that you have.

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<v Speaker 1>Obviously you've had great success at MicroStrategy with having a

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<v Speaker 1>bitcoin treasury. You recently pitched Microsoft though on investing in bitcoin.

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<v Speaker 1>That was rejected. But are you surprised that you haven't

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<v Speaker 1>seen more traditional companies follow your lead here and invest

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<v Speaker 1>in bitcoin.

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<v Speaker 2>I think Microsoft's are the great companies in the world,

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<v Speaker 2>so they don't really have a need to adopt a

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<v Speaker 2>new idea. But in essence, Microsoft strategies are to buy

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<v Speaker 2>their own stock back and to park short term cash

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<v Speaker 2>and treasuries, and then to pay out dividends. That's very conventional.

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<v Speaker 2>That's the finance playbook that would be taught at Harvard

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<v Speaker 2>Business Goal, and if you're a successful company with a

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<v Speaker 2>great business, you tend to stick with that playbook. The

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<v Speaker 2>playbook changed, really, it changed a few days ago when

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<v Speaker 2>fair value accounting became mandatory. You know, we go into

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<v Speaker 2>twenty twenty five, I expect you'll see I think you'll

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<v Speaker 2>see the repeal of SAB one twenty one. I think

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<v Speaker 2>you'll see fair value accounting. I think you'll see bitcoin

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<v Speaker 2>embrace as a digital commodity by the regulators. We already

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<v Speaker 2>can see the political wins are very favorably shifted. Now,

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<v Speaker 2>for the first time in one hundred years, large public

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<v Speaker 2>companies have a capital asset that they can consider in

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<v Speaker 2>lieu of treasury bills, and that's bitcoin. It doesn't make

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<v Speaker 2>sense to consider real estate, or gold, or paintings or

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<v Speaker 2>barrels of oil as a treasury asset. It does make

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<v Speaker 2>sense to consider bitcoin. So really, we're year one of

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<v Speaker 2>a new era, and I would think that the companies

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<v Speaker 2>that embrace it first are the ones that have a

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<v Speaker 2>need to know or they're very close to the bitcoin industry.

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<v Speaker 2>The digital assets industry, the Magnificent Seven. They'll embrace it

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<v Speaker 2>later because they don't need it now, all.

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<v Speaker 1>Right, Michael, that's a good place to leave it. Always

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<v Speaker 1>great to speak with you. That, of course, is Michael Sailor.

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<v Speaker 1>He is MicroStrategy chairman and co founder.