MicroStrategy's audacious $42 billion capital plan is a 'win for all,' analysts say

Management has raised its target BTC Yield, reflecting anticipated gains from the 21/21 Plan. The yield is projected to reach 6-10% annually. The company now aims to accumulate 412,220 bitcoins by the end of 2025, with an expected bitcoin price of $175,000 by that time.

The term BTC Yield is a "language-laundering of real yield for what MicroStrategy is doing," Two Prime Digital Assets CEO Alexander Blume said. That is, it is bringing the company's BTC net asset value closer to its market cap, which sits at around $50 billion, according to Yahoo Finance.

"It's more like a company getting less discounted to NAV than actual yield. That being said, it's a clever tactic to take a negative (BTC being lower than share value) and make it a perceived positive," Blume said in an email to The Block.

Benchmark analyst Mark Palmer credits MicroStrategy's premium stock valuation — currently 2.7x its net asset value — to its unique compounding strategy, which combines bitcoin with traditional financial tools. Institutional demand for bitcoin and a potentially favorable U.S. regulatory environment could fuel further stock gains.

"[W]e have been hearing from more investors who are mulling investments that would perform well amid further monetary debasement given their expectation that such debasement is likely to continue in the U.S. regardless of the outcome of next month’s elections," Palmer wrote in a note to clients. "We believe this concern, based on the belief that the U.S.’s need to finance large budget deficits will persist, has been one of the reasons for the recent strength in bitcoin’s price; we also think this issue is likely to spur additional interest among institutions in bitcoin and related investments."

Palmer said MicroStrategy's ability to generate compounding yield on its bitcoin holdings, enabled by leverage accrued through the repeated tapping of the U.S. capital markets, differentiates its stock from alternative means of gaining exposure to bitcoin, such as spot bitcoin ETFs.

"Management told us that they wanted MSTR to have a robust, well-outlined plan for raising capital to fuel its bitcoin acquisition strategy rather than seeking to do so in a less intentional fashion," Palmer noted. "They said that the $42bn amount, as well as the even split between equity and fixed income issuances, had been derived through a thorough modeling process that assessed how much capital the company could realistically raise within a three-year period."

According to Blume, the structure is reasonable for any size, big or small, to take low-interest debt and offer a convertible premium to buy shares in the future.

"It's a win for all," he said. "Considering their actual business revenues are on the decline though, if BTC drops sharply and stays there for long, this company is going to be vaporized in mountains of unpayable debt."

Palmer raised his MSTR price target from $245 to $300 and maintained his "buy" rating on the stock. Shares traded around $245 at publication time. Bitcoin's price traded around $70,370, down 2% over the past 24 hours, according to The Block's BTC price data.