MicroStrategy’s Innovative Capital Raising Strategy
Disclaimer: The analyst who authored this article possesses shares in MicroStrategy (MSTR).
MicroStrategy (MSTR) has truly set the pace in the realm of innovative capital raising, particularly with its ambitious strategy to acquire substantial amounts of bitcoin (BTC). Under the leadership of Executive Chairman Michael Saylor, the company has taken a bold step forward this week by launching its perpetual preferred stock offering, designated as STRK.
Preferred stock occupies a unique position on a corporate balance sheet, nestled between equity and debt. It provides investors with the regular returns akin to bonds while simultaneously granting them an ownership stake in the company. Well-respected MicroStrategy analyst Ben Werkman recently shared insights on social media platform X regarding the appeal of preferred stock for institutional investors. He highlighted its advantages, including the absence of maturity risk, steady yield, and the potential for equity upside.
Werkman noted, “I could envision a situation where [the preferred stock] begins to capture some of the convertible bond market for fixed income investment due to its lack of any fixed maturity date.” He further emphasized that preferred stock could be significantly more accretive compared to traditional convertible offerings and undoubtedly more beneficial than conventional share sales.
Echoing these sentiments, Jeff Park, the head of alpha strategies at Bitwise Investments, referred to MicroStrategy’s preferred stock offering as one of the most attractive securities currently available, labeling it a next-generation investment vehicle. “STRK is an exceptionally well-structured instrument,” Park remarked. “It offers investors two pathways to success: Firstly, if interest rates decline, it significantly enhances the principal value. Secondly, if MicroStrategy’s stock price rises first, investors have the option to convert their holdings and acquire a volatile asset or simply choose to sell directly.”
For context, the largest U.S. preferred stock exchange-traded fund (ETF) is the BlackRock iShares Preferred and Income Securities ETF (PFF), which boasts approximately $15 billion in assets under management. Notably, major corporations such as Boeing (BA), Wells Fargo (WFC), and Citigroup (C) are among the largest holders of the PFF ETF.
The final pricing details of the new security are expected to be finalized and disclosed following the market’s close on Thursday.
