The protection that preferences provide is so important and so often ignored by the media and general public.
Imagine if you could buy Twitter stock today at $50, with the guarantee that if the stock went below that, you'd get your $50 back. Would you buy? I would, for sure. I'd even be willing to buy at $100: it's all upside and no downside. Does that mean that Twitter is worth twice its current valuation? Of course not.
How do you think DST got into all those hot deals?
As mentioned in the article, there's always potential downside to preferred stock. A more accurate comparison is if you could buy Twitter stock for $100, would only start losing money if it went below $30, and would only start making money if it went above $100. If that is starting to sound like a crummy deal, then clearly the preferred stock price has some loose relation to that of the common stock.
I think a good way to describe it is a package deal containing one stock and one american sell option. So basically you value the sell option at $50, which is stupid, since the profit from exercising it can never be over $50.
EDIT: What I mean is, the absolute best possible case for the option is that the stock drops to zero. In that best case you get your money back: $50
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The protection that preferences provide is so important and so often ignored by the media and general public.
Imagine if you could buy Twitter stock today at $50, with the guarantee that if the stock went below that, you'd get your $50 back. Would you buy? I would, for sure. I'd even be willing to buy at $100: it's all upside and no downside. Does that mean that Twitter is worth twice its current valuation? Of course not.
How do you think DST got into all those hot deals?
As mentioned in the article, there's always potential downside to preferred stock. A more accurate comparison is if you could buy Twitter stock for $100, would only start losing money if it went below $30, and would only start making money if it went above $100. If that is starting to sound like a crummy deal, then clearly the preferred stock price has some loose relation to that of the common stock.
"it's all upside and no downside."
If you ignore the cost of doing the deal, any further investment of time and expertise into the company, and the opportunity cost.
And the fact that you still might lose all the money. Preference puts you (jointly) first in line for whatever is left, if anything.
I think a good way to describe it is a package deal containing one stock and one american sell option. So basically you value the sell option at $50, which is stupid, since the profit from exercising it can never be over $50.
EDIT: What I mean is, the absolute best possible case for the option is that the stock drops to zero. In that best case you get your money back: $50