Michael Saylor Pushes Back On Dilution Concerns, Says Strategy's Stock Sales Aren't Like Google's

Strategy’s Executive Chairman said mNAV has limitations, pointing investors to Strategy's 8-K and 10-Q filings.

• Saylor defended Strategy's equity issuance at BTC Prague, saying it becomes "massively accretive" when liabilities and asset purchases are correctly factored in
• Twenty One Capital CEO Jack Mallers pressed Saylor on whether treating out-of-the-money convertibles as equity inflates the mNAV calculation
• Saylor conceded there is no single agreed-upon metric for Bitcoin treasury companies, as Bitcoin traded in the $60,000 bracket during the panel.

Michael Saylor, executive chairman of Strategy (MSTR), defended the company's approach to calculating dilution and net asset value on Friday during a digital credit strategy panel at the BTC Prague event.

The equity issuance, which is widely being characterized as dilutive, becomes “massively accretive” when liabilities and asset purchases are correctly considered, Saylor said. "The idea that selling equity is dilutive is a misnomer," Saylor said. "If you calculate net assets per share after adjusting for the liabilities, everything we're doing is accretive, whether we swap equity for Bitcoin or swap equity for cash."

MSTR’s price closed over 3% on Friday. On Stocktwits, retail sentiment around MSTR remained in the ‘bearish’ zone, while chatter stayed at ‘normal’ levels over the past day.

How Strategy Calculates mNAV

Saylor stated that the calculation scope of the company’s mNAV metric is defined as its stock market capitalization plus net debt and “nominal” preferred share capital, saying the metric has its own limitations, asking investors to compare other metrics before making a financial decision.

"A lawyer will tell you a public company cannot have a publicly traded security based strictly on a single website disclosure," he said, pointing to the company's 8-K and 10-Q filings, which he said carry disclaimers that mNAV "doesn't show the full financial picture."

To judge whether an equity-for-asset swap will lead to dilution or accretion, two core conditions must be verified, said Saylor – the use of funds and the level of the post-liability transaction price relative to net assets per share. "It turns out that a billion-dollar company that issues 100 million of equity has not diluted the shareholders; it simply expanded the capital structure from 1 billion to 1.1 billion," he said. "You still have the same assets per share."

He contrasted this with what he termed classic dilutive deals, such as paying too much for an intangible asset that is ultimately written down. "If I bought a Picasso for 100 million and it was only worth 25 million, that might be dilution," Saylor said.

Saylor also said preferred equity instruments, such as Strategy's Short Duration High Yield Credit Stretch (STRC), are frequently mischaracterized as liabilities. "It is not a balance sheet liability," he said, arguing such instruments only become liabilities "in liquidation," an event he said is "impossible" to reach absent maturing debt.

Jack Mallers Presses On Dilution Definition

Saylor's remarks came in response to a question from Twenty One Capital (XXI) CEO Jack Mallers, who pressed him on the definition of mNAV, claiming that some companies treat out-of-the-money convertible securities as equity in ways that "inflate the equity" and make the mNAV calculation "more beneficial to the company."

"If I start a company, I raise 100 grand for 10% of the business, I would assume that's dilutive, because now I own 90% of the business," Mallers said. "But if raising dollars for equity isn't dilution, then what would be dilutive?"

In the conversation, Mallers first cited market views, noting that investors have characterized Alphabet’s (GOOGL) recent issuances of preferred stock and listed common stock as equity dilution. He then asked whether the same logic for determining dilution applies to Strategy. 

Saylor responded that the core criterion for judging dilution is the use of the raised capital. "If you sell a billion dollars of equity to invest in semiconductors and Nvidia chips that have a useful life of four years, then yeah, it's probably going to be dilutive, unless you can prove the business... is going to generate cash flows that offset that dilution," he said.

No Single Metric For The Sector

Saylor conceded there is no single agreed-upon metric for the sector. "These business models are embryonic in their first year," he said. "I don't think there's a single metric, even though there are some that are useful."

Strategy is the largest corporate Bitcoin (BTC) treasury holder. Bitcoin’s price was trading at $63,877, up 0.4% in the last 24 hours. The apex cryptocurrency has been down around 27% so far this year. 

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