Andrew Bary

Three MicroStrategy executives took advantage of the software company's recent preferred stock sale and snapped up shares that came at a cheap price and a yield of nearly 12%.

The company priced 8.5 million shares of 10% preferred stock at $85 each, below the expected price of $100, resulting in a yield of about 11.75%. The deal raised $711 million after fees. MicroStrategy, which does business as Strategy, is the largest corporate Bitcoin holder, with about 506,000 coins worth $44 billion.

MicroStrategy CEO Phong Le purchased 6,000 preferred shares at $85, while CFO Andrew Kang bought 1,500 shares, and general counsel Wei-Ming Shao purchased 500 shares, according to Form 4 filings with the Securities and Exchange Commission on Monday.

Preferred shares are a form of equity and generally pay a fixed dividend rate. The bondlike securities are senior to common shares and junior to corporate debt.

The preferred stock offering is due to settle Tuesday and is expected to begin trading Wednesday on the Nasdaq under the ticker STRF.

The new deal offered a sizable yield premium above MicroStrategy's existing convertible preferred stock, known by its ticker STRK. That 8% STRK convertible preferred is now trading at around $87 on the Nasdaq for a yield of about 9.20%.

With Bitcoin, MicroStrategy stock, and the STRK preferred shares all rallying in recent days, the new STRF preferred stock could begin trading at a nice premium to the offering price, especially given the high yield. The new preferred cannot be converted into common stock.

In comparison, the STRK issue has an equity conversion feature, adding to its value, but MicroStrategy's common stock would have to more than double to make that conversion worthwhile. Each of the convertible preferred shares can be exchanged for one-tenth of a common share.

MicroStrategy stock is down 0.5% at $334.20 Tuesday but is up 20% over the past week. Bitcoin is little changed Tuesday at around $87,000.

While there was insider buying of the latest preferred shares, there have been no insider purchases of MicroStrategy common stock in the open market since 2022, Barron's analysis shows.

One possible reason is the common stock trades at a big premium to the value of the company's Bitcoin. Barron's estimates that the stock trades for about double the value of the company's Bitcoin holdings. Back in 2022, the stock traded at parity to the Bitcoin holdings.

The company's preferred stock looks like the better way to play MicroStrategy than the richly priced common shares, given the high yields and considerable asset coverage. The value of the company's Bitcoin holdings exceeds MicroStrategy's roughly $10 billion of debt and preferred stock by a factor of more than four to one.

The company doesn't have traditional earnings given that its small software business isn't profitable on a GAAP (Generally Accepted Accounting Principles) basis and its huge Bitcoin holdings yield nothing. There is no rating on the preferred issues, but they likely would be junk grade if they had a rating.

But there is a lot of Bitcoin value relative to the company's debt and preferred stock. And the MicroStrategy preferred stock yields much more than bank preferred shares at around 6% and the average junk bond at 7% or so.

MicroStrategy's insiders seem to agree.

Write to Andrew Bary at andrew.bary@barrons.com

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March 25, 2025 12:07 ET (16:07 GMT)

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