In a recent address, CEO Phong Le of Strategy highlighted a notable shift in investment trends among retail investors. He indicated that these investors are increasingly gravitating towards the company’s flagship preferred shares, STRC, in contrast to its common stock, MSTR. Currently, retail individuals constitute approximately 40% of Strategy’s ordinary shares, but they represent around 80% of the investment in STRC, raising significant implications for the firm’s fundraising strategy.
The firm, which had its $2.5 billion debut last year, has seen STRC become a favored choice for retail investors. With a current market cap pegged at $5 billion, Le suggested that the allure of STRC among retail investors reflects a preference for low-volatility and high-yield digital credit solutions. This shift is particularly noteworthy as Strategy’s common stock price has suffered a remarkable decline, plummeting 56% over the last six months to $134.
Michael Saylor, Strategy’s Executive Chairman and co-founder, illuminated the potential of STRC shortly after its launch. He expressed that the product, currently offering an 11.5% annual dividend, could attract a “whole new class of people,” particularly older investors. Not only has STRC found favor with individual retail investors, but it is also becoming a notable line item on the balance sheets of other Bitcoin-focused companies.
Access to STRC has broadened, thanks to popular trading platforms including Robinhood, Kraken, and Webull, leading to retail investors holding a substantial $4 billion worth of the dividend-paying shares. While this amount is significant, it is still dwarfed by the approximate $18.5 billion value of the common shares that retail investors own.
Mark Palmer, an equity research analyst at Benchmark-StoneX, provided additional context on the diverging preferences of retail investors. He noted that while the common stock possesses theoretically limitless upside potential, it serves more as a leveraged Bitcoin proxy without yielding any dividends. Thus, it attracts sophisticated, risk-tolerant investors. In contrast, STRC presents a more appealing case for retail investors seeking steady, predictable returns, encompassing the attributes of high-yield and low-volatility investment with Bitcoin overcollateralization limiting downside risk.
Benchmark’s analysts have set a bullish year-end price target of $705 for Strategy’s common stock, in stark contrast to TD Cowen, whose analysts have reduced their target for the stock to $500 from an earlier $440. The dynamics of STRC’s creation have been bolstered recently, especially following a vigorous marketing campaign at Strategy’s annual conference in Las Vegas, which coincided with an increase in issuance of the preferred shares. Thus far in the month, the firm has successfully raised over $1.5 billion through this product, accounting for about 33% of its market cap.
A unique feature of STRC is its design to trade close to a $100 par value. If the share price exceeds this threshold, Strategy responds by issuing additional shares to boost its Bitcoin reserves. Conversely, should the share price linger below this point, the company has expressed intentions to increase the dividend to stimulate demand.
Though institutional investors are showing interest in STRC, Palmer suggested that such investments are unlikely to overshadow retail demand. Institutions often favor the liquidity associated with common equity and its asymmetric risk-reward profile. Thus, STRC is not merely competing against common stock, but rather carving out its own niche in the investor community. This segmentation enhances Strategy’s capability to gather capital, effectively broadening its potential investor base for Bitcoin acquisition.
