STRC Current Value Reveals MSTR Risk: Bitcoin Accumulation Commitment May Fall Short

Gate News: On March 20, recent net present value calculations show that the dividend-preferred stock Stretch (STRC), issued by Strategy (formerly MicroStrategy), may have an overestimated potential return for common shareholders. Michael Saylor aims to raise billions of dollars through STRC to buy Bitcoin (BTC) and pass on immediate BTC appreciation benefits to MSTR shareholders. However, the high annual dividend yield of up to 11.5% and future payment obligations significantly increase its costs.

STRC pays dividends monthly, with an 11.5% market-based pricing benchmark, about 450 basis points higher than junk bond yields. Its principal is non-redeemable, with an indefinite maturity date, making it more like an annuity cash settlement product than a traditional bond. Discounted to present value, future cash flows of STRC theoretically exceed a face value of $5.025 billion, but the market prices it just above $5 billion, indicating investor skepticism about maintaining long-term dividends and face value.

While STRC can improve the balance sheet and transfer funding costs in the short term, immediate gains for common shareholders are limited. The strategy only becomes truly valuable if Bitcoin’s annual growth far exceeds 11.5%, even reaching Saylor’s expected 30%. Otherwise, the high dividend payments will long-term drag on the company’s cash flow and profitability. Over the past five years, Bitcoin’s annual returns have fallen far short of this level, meaning MSTR common shareholders bear risks with uncertain rewards.

Additionally, STRC shows significant price volatility in the secondary market, trading close to face value, with no premiums currently assigned. This reflects investor caution about STRC’s long-term sustainability. Theoretically, if bidders trust the dividends and face value, STRC could be valued at $10 billion to $12 billion, but current market pricing indicates skepticism about this outlook.

Overall, the potential for STRC to deliver Bitcoin accumulation and immediate shareholder returns is highly uncertain. The high dividend obligations and limited market confidence may continue to impact the company’s cash flow and earnings per share over the coming years. (Protos)