Strategy company made a new move to reduce market fluctuations and increase investor confidence. The company, also known as MicroStrategy, announced its plan to issue additional perpetual preferred stock. While company shares have fallen 17 percent since the beginning of the year, this step was taken as a precaution against volatility in common shares.
Management Views Preferred Shares as a Primary Financing Tool
The company, managed by Phong Le, is known for allocating a significant part of its portfolio to Bitcoin. With its new step, the company aims to reduce the impact of fluctuations in digital assets. Le stated that the recent sudden changes in the price of Bitcoin are directly reflected in the company’s share performance. For this reason, he pointed out that with the preferred share product “Stretch”, investors can access digital capital with less volatility compared to the classical partnership structure.
“We designed the Stretch product for investors looking to gain exposure to digital assets and reduce volatility. This product closed exactly as planned, at a face value of $100,” Phong Le said.
This new share, called Stretch, currently offers a variable dividend of 11.25 percent that updates monthly and is targeted to trade near $100 par value. The company is actively working to promote this product more effectively and inform investors.
The company’s CEO said, “Adoption of such products takes time and requires some marketing. However, we have achieved a strong performance in terms of liquidity this year. We have a plan to transition from equity capital to preferred capital throughout the year. We expect Stretch to become increasingly important in our product portfolio.”
Bitcoin Buying Strategy and Pressure on MSTR Shares
Strategy continued to increase the Bitcoin accumulation on its balance sheet. With the latest purchase, the company has 714,644 BTC. However, under current market conditions, the price of Bitcoin is well below the average cost of the company. According to recorded data, the current price of Bitcoin is around $67,422, which is below the company’s average purchase price of $76,056. As a result, there was an unrealized loss of around $6.1 billion in Bitcoins held by the company.
Shares traded under the code MSTR have lost 17 percent of their value since the beginning of the year and fell 5 percent on Wednesday alone. In the same period, the price of Bitcoin decreased by around 22 percent. The company’s main financing model is mostly provided by issuing new shares. The key point here is the ratio of the company’s share value to the net asset value per share (mNAV) of the Bitcoin it holds. According to SaylorTracker data, the company’s diluted mNAV ratio stands at 0.95, meaning its share price is trading below its net asset value.
Change in Capital Structure and Risk Factors
The company is having difficulty raising funds through traditional share issuance because the shares are below its net asset value. When it is traded above its net asset value, it has the opportunity to provide added value to shareholders by issuing new shares and purchasing additional Bitcoin. On the other hand, new issuances in the current situation can create a dilutive effect for shareholders. At this point, the constant focus on preferred shares aims to reshape the risk profile of the company and also support the sustainability of the Bitcoin purchasing strategy.
On the other hand, this new route of the strategy creates additional financial commitments, such as a fixed dividend obligation. Especially if the weak trend in Bitcoin prices continues, the company’s ability to meet these obligations may pose a significant financial risk. Still, the current plan marks a notable shift in both the company’s dividend policy and its pursuit of Bitcoin-driven growth.
