MicroStrategy’s $2 billion preferred stock strategy could unlock institutional goldmine, analyst says
2025-01-07
Category: None

MicroStrategy is planning to raise up to $2 billion by issuing preferred stock, advancing its ambitious “21/21” plan to sell $42 billion in equity and fixed-income securities. The software company has leveraged its issuance of convertible bonds to capitalize on share price volatility, benefiting from a stock that soared 500% last year.
MicroStrategy has tapped into the demand among convertible bond investors for higher implied volatility, a feature that Benchmark analysts say enhances the appeal of the equity conversion option embedded in these bonds.
“The extent to which investors value this element of MSTR’s offerings has been reflected in the oversubscription of its convertible offerings and their pricing,” wrote Benchmark equity analyst Mark Palmer in a note on Monday. He cited the November 2024 issuance as a key example, where strong demand for $1.75 billion in convertible bonds allowed the offering to be upsized to $3 billion. Notably, the bonds carried a 0% coupon.
By turning to perpetual preferred stock, MicroStrategy could attract institutional investors such as insurance companies, pension funds and banks, Palmer said. These entities typically favor assets with fixed dividend payments and relatively low volatility. Unlike bonds, perpetual preferred stock does not have a maturity date or a mandatory redemption timeline, instead paying fixed dividends indefinitely as long as the issuing company remains operational.
Further, MicroStrategy is retaining the right to include features such as cash dividend payments and convertibility into Class A common stock for the perpetual preferred stock it plans on issuing. 
“We believe it is likely that any preferred stock the company offers would include both features, with convertibility into common shares providing preferred stock investors with elements of volatility and optionality that they do not often see,” Palmer wrote. “These securities, in essence, would offer preferred investors a unique proposition: an embedded, indefinite call option on a company whose value is largely tied to a highly volatile cryptocurrency.”
Benchmark reiterated a “buy” rating for MicroStrategy’s stock and maintained a price target of $650. Its valuation model assumes that bitcoin will reach $225,000 by the end of 2026 and that the company will have accumulated 638,400 BTC by that time.
MicroStrategy recently purchased another 1,070 BTC for approximately $101 million at an average price of $94,004 per bitcoin. As of Jan. 5, the company holds 447,470 BTC, worth over $44 billion.
MSTR shares were up more than 7% to $365.81 at publication time. The price of bitcoin was up 4.4% to $101,960, according to The Block’s BTC price page.
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