Michael Saylor's 11.5% yield stock pitch sparks backlash amid Strategy's financial crisis
Imagine your stock has fallen more than 70 per cent from its peak and has materially underperformed the asset it was meant to track. You might think your priority would be to map out how it intends to turn that around.
That, in theory, is the situation facing the bitcoin investment vehicle Strategy (formerly MicroStrategy), whose shares have hugely lagged the cryptocurrency since launching a $42bn capital-raising plan in the autumn of 2024.
Instead, its executive chair Michael Saylor is talking up the company's preferred stock, in ways that might make most compliance officers feel queasy.
Earlier this week he posted a video on X featuring a young, presumably AI-generated woman at a tropical resort crediting her early retirement to "Stretch" (STRC).
Stretch is a perpetual preferred instrument that pays a variable dividend. The instrument today yields 11.5 per cent. When Strategy first issued it last July, it had a 9 per cent coupon, but the company has progressively increased the dividend to keep STRC trading at par. In most markets, a 250 basis point increase in such a short time span would suggest weak investor appetite. Here it is presented as a success.
The video itself is loose with the details. The protagonist cites "about 11 per cent" in dividends before the screen switches to 11.5 per cent annualised, paid monthly. When I last worked in finance - all the way back in the misty yesteryear of 2022 - those kinds of specifics mattered, but here precision isn't the point. You're supposed to buy STRC to live her kind of life, not to obsess over a few measly basis points.
The reaction to Saylor's X post has ranged from outrage to mockery. Senior executives don't usually promote their own securities directly to retail audiences in this way, still less imply a route to early retirement. SEC regulations constrain how executives can communicate about their own securities (or they used to at least).
The preferred shares - marketed as "digital credit" - promise (fiat) cash dividends but are neither backed by bitcoin nor secured against it. Their credibility purely rests on Strategy's continued access to capital markets. After all, the legacy software business generates virtually no free cash flow, and the company's stash of 762,000 bitcoin yields no income. In practical terms, servicing those dividends depends on issuing more securities, particularly common stock. And the common stock, well....
Saylor has historically been careful to promote bitcoin rather than Strategy's ordinary shares, maintaining a razor-fine distinction between advocacy and stock promotion. The STRC post muddles that distinction. The video doesn't offer a macro thesis about the transformative role of digital assets in global finance; it is a direct pitch for a company-issued instrument, with all the tropes of high-end lifestyle marketing.
The post also sits awkwardly with the credit reality. S&P rates Strategy six notches below investment grade, and if they were rated, the preferred instruments would sit lower still. In the language of debt capital markets, this is the promotion of a "junk" security.
The focus on the preferreds also distracts from some increasingly inconvenient facts. The common stock is down roughly 60 per cent over the past year, and there is little to show for over five years of Bitcoin accumulation.
Strategy's average purchase price is around $76,000; with Bitcoin nearer $67,000, it is sitting on roughly $7bn of unrealised losses. Add to that the heavy insider selling - $570mn in 2024 - and the picture for equity holders is hardly reassuring.
Nor does it help that the company's $8.2bn of convertible bonds are now out of the money, leaving Strategy exposed to repaying principal absent a meaningful recovery in its share price.
In Saylor's defence, the US regulatory backdrop is.... more permissive than it once was, with a clear move towards caveat emptor in parts of retail investing. The Trump administration has, for example, just proposed easing the marketing of alternative assets to 401(k) savers. In that context, this kind of communication may be less out of step than it would have been a few years ago.
For now, however, Strategy appears more focused on marketing around its stock price underperformance than addressing it directly.
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