MicroStrategy’s Bold Move: $2 Billion Perpetual Preferred Stock Offering Could Change the Game!

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What to know:

  • MicroStrategy is targeting a $2 billion perpetual preferred stock offering.
  • The perpetual preferred stock terms have yet to be released, which is expected to be announced in Q1.
  • Benchmark maintains the buy rating at $650 for MicroStrategy.

The analyst who wrote this piece owns shares of MicroStrategy (MSTR).

Ever since MicroStrategy (MSTR) transformed into a Bitcoin holding firm back in August 2020, they have relied on three main methods for procuring Bitcoin (BTC): self-funded cash, at-the-market (ATM) issuances, and convertible bond offerings.

In simpler terms, MicroStrategy plans to acquire Bitcoin by issuing perpetual preferred stocks in order to gather additional funds, as stated on January 3rd. According to Benchmark, they might do this through a single offering or several, with the goal of raising a total of $2 billion.

At the ICR conference in Orlando, Benchmark organized a gathering for investors where they conversed with Michael Saylor, the executive chairman of MicroStrategy, about their ongoing perpetual preferred stock offering.

A perpetual preferred stock generally doesn’t have an expiration date and can last indefinitely unless the company decides to retire it or sets an end date. The investors holding this stock receive consistent dividends but don’t have voting privileges. The company might be allowed to repurchase the stock at a prearranged cost after a certain period. In case of a liquidation, perpetual preferred shareholders are paid before common shareholders, but debt holders are paid first.

Everlasting stocks are appealing because they don’t have a specific expiration date, unlike Master’s convertible bonds, which some can already be cashed in and converted. Typically, convertible bonds last around 4 to 8 years, as mentioned by Saylor during the conference.

Based on the information provided, Saylor mentioned that perpetual preferreds are beneficial because they have an extended maturity period. This financial instrument functions not only as a one-time principal payment but also includes an embedded, ongoing call option. The company would gain strength since its capital structure would be more resilient with the extended duration.

Based on Benchmark’s analysis, the perpetual preferred stock might deliver a yield in the middle range of digits, offering lower volatility and operating without an options market, contrasting significantly with a convertible bond.

Long-term investors such as pension funds and banks might find perpetual investments appealing, as these investments offer consistent and fixed income payments.

Despite not revealing specific details about the perpetual preferred stock yet, MicroStrategy has announced that they plan to launch this offering during the first quarter. The press release from January 3 suggests that the terms may involve dividend payments, the option to convert into class A common stock, and provisions for redeeming shares at an appropriate time.

Benchmark maintains its buy rating on MSTR with a price target of $650.

As of Monday, MicroStrategy purchased a further 2,530 BTC taking total holdings to 450,000 BTC.

As a researcher, I’d like to inform you that next week, MicroStrategy has scheduled a Special Meeting for Shareholders on January 21st. During this meeting, we, the shareholders, will have the opportunity to vote on proposals to increase the authorized class A common stock and preferred stock. Moreover, MicroStrategy’s Q4 earnings call is set for February 4th.

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2025-01-16 17:44