MicroStrategy, a software company with a large accumulation of Bitcoin, plans to raise US$2 billion through the issuance of preferred shares to promote its ambitious "21/21" plan, which is to sell US$42 billion in stocks and fixed-income securities to raise funds to buy Enter Bitcoin. MicroStrategy has used convertible bonds to cash out share price fluctuations, benefiting from a 500% rise in its own stock price last year.
MicroStrategy takes advantage of investor demand for higher implied volatility in convertible bonds. That reinforces the appeal of the stock conversion options embedded in the bonds, Benchmark analysts said.
Benchmark stock analyst Mark Palmer stated in a report published on January 6:
Investors assess the value of securities issued by MicroStrategy, reflected in the oversubscription and pricing of its convertible bonds.
He cited the example of a securities issuance in November 2024, when strong market demand for the company's $1.75 billion convertible bonds led to an increase in the issuance amount to $3 billion. Notably, these bonds are zero-coupon bonds with a coupon rate of 0%.
Mark Palmer noted that by converting to perpetual preferred stock, MicroStrategy can attract institutional investors such as insurers, pension funds, and banks. These institutions typically prefer assets that distribute fixed dividends and have relatively low volatility. Unlike bonds, perpetual preferred stock has no maturity date or mandatory redemption period, but instead pays fixed dividends indefinitely as long as the issuer remains operational.
In addition, MicroStrategy retains certain rights in the perpetual preferred stock it plans to issue, including cash dividend payments and the ability to convert into Class A common stock.
Mark Palmer stated in the report: "We believe that any preferred stock offered by the company may include two features, convertible into common stock, providing preferred stock investors with less common volatility and choice elements."
These securities will essentially provide preferred investors with a unique premise: an embedded perpetual call option on a company whose value is highly correlated with the volatile cryptocurrency.
Benchmark reiterated a "buy" rating on MicroStrategy stock and maintained a target price of $650, based on their valuation model which assumes Bitcoin will reach $225,000 by the end of 2026, at which point MicroStrategy will accumulate a holding of 638,400 bitcoins.
MicroStrategy's stock price closed up 11.6% at $379.09 per share on January 6; the price of Bitcoin returned above the $100,000 mark, trading at $101,955.10 at the time of writing.
MicroStrategy announced on Monday that it spent approximately $101 million to purchase an additional 1,070 bitcoins, at an average price of $94,004. As of January 5, MicroStrategy holds 447,470 bitcoins, valued at over $44 billion.
"Analyst: MicroStrategy plans to issue $2 billion in preferred stock, expected to attract institutional investors' interest." This article was first published on (Blockchain Customer).
