In early January 2025, MicroStrategy announced plans to raise up to $2 billion through a perpetual preferred stock offering. The move is part of its ambitious 21/21 plan, which aims to raise $21 billion in equity and $21 billion in fixed-income instruments from 2025 to 2027.
According to the company, the capital would go toward strengthening its balance sheet and acquiring more Bitcoin (BTC).
Later, on Jan. 27, 2025, MicroStrategy officially unveiled its “Series A Perpetual Strike Preferred Stock,” initially planning to offer 2,500,000 shares at a $100 liquidation preference, or $250,000,000.
The announcement raises many important questions: Will this offering enhance or dilute shareholder value? And, perhaps, most importantly, what will this mean for the stock price and long-term viability of the company’s strategy?
As part of this report, we’ll walk through the proposed structure in detail and explore how the company addresses those concerns moving forward.
Preferred stock sits between common equity and debt in a company’s capital structure. Holders of preferred shares have priority over common shareholders when the firm pays dividends.
Bondholders, however, retain the highest claim in a liquidation scenario, placing preferred stockholders in a middle-ground position. With its balanced risk and reward profile, preferred stock has become a reliable option for banks and other corporations to secure steady capital.
A typical preferred security includes a set dividend rate based on the par value. For example, a $1,000-par-value security paying a fixed annual dividend of 5% translates to $50 in income each year. This dividend is usually distributed before any payments are made to common stockholders.
The board can suspend payment in extreme situations, although this tends to alarm the market and can damage the issuer’s access to financing. Some preferred issues contain “cumulative” features, ensuring that skipped dividends must eventually land in the holder’s hands.
Some prefer to view preferred stock as “equity that behaves like a bond.” Others see it as a special type of share that ranks second to creditors if things go wrong. Given its unique structure, it’s no surprise that firms hold it in high regard:
Banking regulations sometimes consider certain preferred securities Tier 1 capital, which encourages banks to own them.
Tier 1 capital represents a bank’s core financial strength. It consists of high-quality assets like equity and certain preferred securities, both of which provide a buffer against financial risks and losses. This classification appeals to banks because preferred shares help meet regulatory requirements while offering stable returns.
Similarly, pension managers and insurance companies seek yield and appreciate steady dividends. MicroStrategy’s leaders appear to see an opportunity to access that large pool of institutional money.
Common stock is more volatile, so a company positioning itself as a quasi-Bitcoin investment might broaden its investor base by appealing to more risk-averse buyers. That approach can add diversity to the shareholder roster.
Common stockholders receive voting rights, allowing them to influence the company’s direction. They can also gain unlimited upside, if the share price rises. However, they face the greatest risk if the business struggles.
Adding to this uncertainty, dividends on common equity are not guaranteed. Boards have full discretion to declare, reduce, or skip these payouts altogether, though doing so risks reputational damage and potential loss of investor confidence.
In contrast, preferred stock lacks voting rights most of the time, though special conditions can arise if the issuer defaults on dividend obligations. It provides a predictable payout that receives priority over common shareholders.
If the company liquidates, preferred holders will rank above common equity. However, bondholders, secured noteholders and other creditors will still sit in front of preferred investors, as we mentioned above.
Many prefer the potential synergy of convertible preferred stock. That setup blends stable dividends with the opportunity to convert shares into common stock at a predetermined price, often once the common share price meets or exceeds a specified threshold.
Bondholders buy convertible notes for a similar reason. The difference lies in the capital classification. A convertible bond is classified as debt, influencing the issuer’s leverage ratio, while convertible preferred stock typically counts as equity.
That nuance matters for MicroStrategy because the company aims to avoid inflating its official debt levels while still needing additional capital to buy Bitcoin.
Despite these advantages, Benjamin Graham, the father of value investing, remained skeptical of preferred stocks, saying :
“Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one.”
Graham acknowledged that preferred stocks could present opportunities in specific circumstances. He believed that when adversity pushed prices far below their intrinsic value, the risk-to-reward ratio could shift in favor of the investor.
In such cases, preferred stocks might offer strong returns relative to their flaws, but only if purchased at the right price and under the right conditions.
MicroStrategy’s leadership designed an offering that offsets the structural shortcomings Graham identified by providing competitive dividends and potential conversion features to enhance its appeal.
According to Fidelity, the plan is scheduled for launch on Jan. 30, 2025, involving a $250 million perpetual preferred stock issuance priced at $100 per share.
Fidelity also reports an average annual yield of 7.55% (median 6.98%) across 397 preferred issuers, of which only two are crypto-focused—Investview Inc. (16.67%) and Hyperscale Data Inc. (12.79%).
That said, MicroStrategy continues to pursue a different approach. The newly disclosed STRK structure reveals an 8% cumulative dividend. While this rate might seem high compared to typical corporate preferreds, it is lower than certain crypto-adjacent offerings.
An 8% yield arrangement meets all criteria for Michael Saylor and the team. It boosts capital, secures significant funds for Bitcoin accumulation, keeps interest costs manageable and offers a safety valve through share conversion.
It also entails about $80 million on each $1 billion raised, which MicroStrategy can manage quite sustainably. As of January 2025, the firm has only $34.6 million in annual debt service costs.
So, even with the added dividend obligations, the company’s overall financial load remains well within manageable limits, especially considering its ability to cover dividends through a combination of cash and stock. Multiplying these rounds is also likely manageable, especially if future conversions relieve the firm of perpetual dividends once MSTR’s stock price rallies.
Each STRK share is initially convertible into one-tenth (1/10) of a Class A common share, implying a $1,000 per share conversion price. Investors can convert within the third and final month of each quarter or if MicroStrategy calls the shares for redemption (e.g. if the outstanding STRK drops below 25% of the original issuance).
The option to convert into common equity is a major draw for institutions with a bullish outlook on the stock. The attractive above-market dividend further enhances this advantage, making the offering particularly appealing.
This step serves two purposes. First, the conversion price of $1,000 reduces the chance of near-term conversion and fosters stability for yield-focused holders. Second, it ensures that the transaction remains squarely in the equity category. A deeply out-of-the-money conversion option appears more like permanent equity than a disguised bond.
If the four-year Bitcoin cycle theory holds true, Bitcoin could experience a significant upside by the end of 2025, with potential prices ranging from $200,000 to $275,000. As a result, a rise in Bitcoin’s value could also lead to substantial gains in MicroStrategy’s stock price by the end of the year.
Thus, Q1 represents a solid opportunity for MicroStrategy to raise funds and purchase Bitcoin at lower price levels.
Such a scenario would not only benefit the company and its shareholders but also impact the preferred stock’s conversion terms. The stock price threshold might be met earlier than expected, if Bitcoin’s surge drives MSTR’s stock higher.
This would allow holders to convert the preferred shares into common stock earlier, reducing MicroStrategy’s long-term dividend burden while offering preferred stockholders significantly greater value.
As the share price appreciates, the potential equity upside becomes far more lucrative than the fixed dividend, even though it dilutes existing shareholder value in the process.
In the short run, such an arrangement supports shareholder value because the preferred shares do not dilute the existing equity base. Over time, however, a conversion to common stock is likely.
Alternatively, the scenario could differ if MicroStrategy opts to pay dividends in common stock, introducing dilution sooner but alleviate cash flow pressures.
However, management plans to deploy the proceeds toward Bitcoin. More Bitcoin on the balance sheet boosts the value per share, which helps offset concerns about eventual dilution.
The stock price should rise alongside an expanding BTC treasury, aided by the premium investors award to MicroStrategy’s strategy.
Sudden downturns may appear, but a three to five-year perspective favors growth if the company remains committed to acquiring Bitcoin. A complete reversal would prompt a different assessment, though that outcome seems unlikely, given current leadership.