The Bond Balancing Act
MicroStrategy Inc’s latest conundrum arises as Bitcoin’s meteoric rise propels both its shares and convertible bonds, resulting in a whopping 280% spike in the cost of refinancing these bonds.
The Stock Surge
Following the issuance of $650 million convertible bonds in late 2020, MicroStrategy’s stock has ascended by a jaw-dropping 390%, rocketing its shares to a closing price of $1,512.99 each on Monday.
The Decision Dilemma
The exceptional stock performance places MicroStrategy’s convertible bonds significantly “in the money,” sparking a crucial choice: to repurchase the bonds at a hefty price tag of approximately $2.5 billion or convert them into up to 1.63 million new shares.
The rising cost of borrowing intensifies the dilemma, with bond-to-share conversion posing a threat to stock value dilution.
The Path Ahead
Despite looming challenges, companies like MicroStrategy are grappling with escalated refinancing expenses, nudging them towards considerations of issuing new stock or convertible bonds at a reduced coupon rate, albeit with inherent dilution risks.
Analysts foresee a promising trajectory for MicroStrategy, highlighting the upcoming Bitcoin halving event and the potential surge in Bitcoin’s price to $150,000 by 2025, coupled with a surge in institutional investment in spot Bitcoin ETFs.
Furthermore, analysts commend MicroStrategy’s proactive approach of enlarging its Bitcoin holdings through capital activities, leveraging its software business’s cash surplus. Expectations are set for Bitcoin holdings to reach 298,246 by the conclusion of 2025.
Stock Movement
MicroStrategy’s stock has witnessed a remarkable 361% surge over the past year, offering investors avenues for exposure through First Trust SkyBridge Crypto Industry And Digital Economy ETF (CRPT) and Advisor Managed Portfolios Miller Value Partners Appreciation ETF (MVPA).
Price Action: MSTR shares displayed a 3.98% uptick, trading at $1,498.51 during the last check on Wednesday.
