Michael Saylor Highlights Strategy’s mNAV Complexity and Confusion Over Dilution

Saylor explains the mNAV calculation and the role of convertible debt, while the debate over dilution at Strategy keeps heating up.

Key Takeaways

• Michael Saylor said Strategy’s mNAV can include multiple valuation frameworks and may cover convertible debt, common stock, and preferred stock.
• Saylor said issuing shares for cash is not automatically dilutive, because shareholders get a real asset in return.
• He pointed to the addition of about $100 million in dollar reserves, bringing Strategy’s total reserves to around $1 billion.

The debate over recent capital dilution at Strategy (MSTR) got fresh attention at BTC Prague, where Executive Chairman Michael Saylor and Jack Mallers, CEO of Strike and Twenty One Capital, shared their views on the company’s valuation and how its complex capital structure affects investors.

Different Views on mNAV and Valuation

Mallers asked Saylor about his definition of multiple-to-net asset value (mNAV), a metric some investors use to value Strategy. That also takes into account convertible debt that is currently not in the money, which means it is not expected to convert at the current share price of about $115 (€100). Saylor said mNAV can be calculated by including the face value of convertible debt, common stock, and preferred stock. He stressed, though, that mNAV is only one of several valuation frameworks. Other methods, like gross assets per share and net assets per share, may exclude preferred stock or convertible debt. According to Saylor, the difference in approach matters less when debt and preferred stock make up a small part of total assets.

Issuing Shares for Cash Is Not Automatically Dilutive

A major sticking point in the debate was whether issuing shares for cash automatically dilutes existing shareholders. Saylor said that does not have to be the case, because shareholders receive a tangible asset in return for their shares, such as cash or Bitcoin. In his view, raising capital strengthens the balance sheet, expands the capital base, and improves the company’s credit profile. As an example, he pointed to the recent addition of about $100 million (€86.7 million) to Strategy’s U.S. dollar reserves, bringing the total to around $1 billion (€0.9 billion). This strategy fits with Saylor’s broader view that Bitcoin is a better store of value than traditional cash reserves, and that using smart leverage through convertible bonds allows Strategy to raise capital at low interest rates for more Bitcoin purchases.

Why It Matters for European Investors

For European investors, the debate over mNAV and dilution at Strategy can offer a look at how complex capital structures and financial instruments affect the valuation and risks of companies that invest in Bitcoin. It also highlights the importance of taking a more nuanced approach when evaluating these kinds of businesses, especially given the use of convertible debt and its impact on future share issuance and balance sheet strength.