Stock-Split Watch: Is MicroStrategy Next?


Stock splits are mostly a magician’s flourish for investors. They do not change the substance of the stock being split but somehow make everything seem more accessible and, by some measures, more exciting.

You’re simply cutting the same business ownership into a different number of slices, usually increasing the share count and lowering stock prices. The total value of the stock itself or the holdings in your brokerage account remains the same. For instance, let’s say you own a stock priced at $400 per share. If the board of directors decides to execute a 4-for-1 stock split, you’ll now have four shares worth $100 each.

But it’s not all accounting smoke and mass psychology mirrors. Not every investor has the option to buy fractional shares, and it’s just more comfortable to keep track of stock prices in a comfortable price range.

Stock splits grab headlines, but the real interest lies in why companies choose to make this move. It’s often fair to see a stock split as a vote of confidence in the company’s future, suggesting that its leaders expect share prices to keep rising from an already oversized price tag.

On that note, data analytics expert MicroStrategy (MSTR 9.95%) seems like a reasonable stock-split candidate. A daring strategy shift has essentially turned the stock into a direct cryptocurrency investment, and its share prices now sit just above $500.

Should you keep a close eye on the stock-split calendar, expecting MicroStrategy’s name to pop up soon? Let’s examine MicroStrategy’s situation.

A checkered stock-split history

MicroStrategy isn’t entirely new to the stock-splitting arena. The company has split its shares twice so far, long before Bitcoin (BTC 0.07%) even existed:

DATE

STOCK-SPLIT RATIO

July 31, 2002

1-for-10

Jan. 27, 2000

2-for-1

Data source: Yahoo! Finance.

The first split was done in the heyday of the dot-com bubble, shortly before the pop. After entering the public market with a $734 million market cap and $106 share price in the summer of 1998, the stock started the new millennium at $210 per share.

MicroStrategy was buying smaller data-analytics companies, spending millions of dollars on lavish parties and commercials for the 2000 Super Bowl. Share prices quickly tripled again after the split, lifting MicroStrategy’s market cap to $24.7 billion for a glorious moment in March 2000. It wasn’t the largest tech company by a long shot, but MicroStrategy’s market cap was comparable to promising upstarts like Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) at the time.

That’s exactly when the dot-com bubble shattered. Free-flowing financing dried up for questionable online business ideas, with harsh consequences for the entire tech sector — MicroStrategy included.

By the end of 2001, the Nasdaq Composite (^IXIC 1.25%) index had fallen by 58% from that all-time high. MicroStrategy’s price was down by 99%, resetting the market cap to a humble $370 million and the stock price to $4.54 per share. So founder, CEO, and Chairman Michael Saylor swallowed the bitter pill of a 1-for-10 reverse stock split, lifting the shares out of penny-stock territory and ensuring compliance with the minimum stock-price requirements of Nasdaq listings.

This ain’t your grandfather’s MicroStrategy 

MicroStrategy’s stock-split history reveals a company once caught in the whirlwind of tech euphoria having to face the harsh realities of market correction. I find it poignant that Michael Saylor led his company through those miserable years and still calls the shots today as executive chairman of MicroStrategy.

But the MicroStrategy of today is markedly different from its turn-of-the-century self. The company has boldly pivoted to become a significant player in the cryptocurrency space, converting most of its cash reserves into Bitcoin and raising more money by various means to further build that Bitcoin portfolio. This tactic positions MicroStrategy uniquely at the intersection of business-intelligence software and digital-asset investments — and the crypto exposure explains nearly all of the stock’s recent gains.

As the landscape of finance and technology continues to evolve, MicroStrategy stands at a fascinating juncture. The stock has quadrupled since the end of 2022, reflecting and amplifying a 166% Bitcoin gain over the same period.

MicroStrategy forecast: Cloudy with a chance of stock split

So another stock split is starting to look likely. Such a move would signal confidence in the company’s future trajectory amid the volatile realms of tech and cryptocurrency.

Now, Saylor might drag his feet on stock-split decisions because he’s unsure about reminding investors of his company’s unflattering split history. But everyone else did the same thing in the dot-com bubble, including Amazon and Apple. Both of those former market minnows have gone back to the stock-split well recently, setting a heartening example for other dot-bomb survivors.

In this new era, a stock split could serve multiple purposes for MicroStrategy. Beyond adjusting share prices to more accessible levels, it could potentially boost investor interest in a company that straddles two rapidly evolving sectors.

It may be unhealthy to hold your breath until Saylor announces a MicroStrategy stock split, but I wouldn’t bet against it, either. Keeping an eye on that calendar of upcoming stock splits may make sense if you want a slimmer, sleeker version of MicroStrategy’s stock. Again, splits don’t really drive shareholder value, but they certainly inspire plenty of headlines. Whether a third split helps MicroStrategy owners or not, that moment in Wall Street’s spotlight just might make up Michael Saylor’s mind.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Apple. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.



Source link

About The Author

Scroll to Top