Strategy (formerly MicroStrategy) announced its third-quarter results yesterday, spending countless hours on its newest and most complex (and relatively small) preferred stock, semi-fixed STRC, which its founders believe will somehow end up serving a billion people.
With the stock up 6% at the open this morning, it would be easy to conclude that Strategy's earnings report yesterday was a success.
However, the one-day loss during yesterday's trading session reduced this number by 7%, not to mention the strong rise in the entire Nasdaq stock this morning, which reduced this number by 1%, and Strategy's MSTR common stock has actually been relatively flat over the past 24 hours.
That subdued performance reflected the nature of yesterday's two-hour earnings call. Emphasized the company's future potential rather than its concrete achievements..
In particular, Thaler kept STRC front and center throughout the conference call, spending more time on small-cap preferred stock than on MSTR, the company's most important stock.
He called STRC the company's “greatest feat of financial engineering to date” and spoke enthusiastically about plans to launch similar versions on multiple stock exchanges overseas.
Although dwarfed by the company's $77 billion worth of MSTR, plus $3 billion worth of other preferred stock and $8 billion worth of debt, STRC has a market cap of just $2.7 billion and garnered more than 30 minutes of airtime on Zoom, X Livestream, YouTube, and other social media to an estimated 25,000 participants.
Thaler predicted that the new version of STRC would provide some form of comfortable retirement for all accredited investors around the world. Somehow, he fixed the total investable market at 1 billion people.
“Everyone in the world would want to have a high-yield bank account with a yield of 10% or more,” he said, repeating the incredible analogy of STRC to a savings product.
Without taking a step back from the obvious risks of that comparison, He raised STRC's yield from 10.25% to 10.5% yesterday..
Do whatever it takes to boost your strategy's STRC dividend rate.
Finally, he highlighted STRC's return of capital or “ROC” dividend structure, which returns tax-deferred profits to long-term holders, and touted this percentage as even higher.
Thaler provided forward guidance that Strategy would maintain its ROC dividend on all preferred stock for at least 10 years, converting STRC's 10.5% dividend rate into a 16.5% “tax-equivalent yield.” He defined this as “the annualized coupon rate of a product for a U.S. individual to achieve the same after-tax effective yield, assuming a 37% federal marginal tax rate and a return on capital treatment for strategy dividends.”
Saylor even claimed in a breathless segment on CNBC that STRC could offer a 20% tax-equivalent yield depending on someone's tax status. “It's like a bank that pays you 20% interest,” he said of STRC.
Previously covered Protoss incredible risk Very unbanking features of STRC.
Despite these risks, Thaler recommended STRC “for a family coffer” during yesterday's earnings call as a type of fund that “probably needs to be spent in six to 12 months,” among other examples of potentially suitable investors.
In addition to STRC, which dominated the headlines, Strategy predicted that there would be no new issuance of corporate bonds. He also claimed that he would consider “equityizing” existing debt by encouraging debtors to convert it into common stock.
Read more: Strategy has not sold STRC through ATMs since July
Dealing with catastrophic mNAV decline in strategies
In a rare admission, the company acknowledged that it is not completely opposed to the idea of buying back shares if its shares fall below 1x multiple of net asset value (mNAV).
Strategy's mNAV has been declining throughout the year, and one analyst questioned whether the company would enter the market and halt the decline if the multiplier continued to fall from its current 1.31x to less than 1x.
Mr. Saylor has been reluctant to even acknowledge the possibility of defeat, but yesterday he acknowledged the possibility of defeat. When the time comes, evaluate stock buyback options..
Regarding the company's junk rating by S&P analysts and its initial rejection of inclusion in the prestigious S&P 500 index, Strategy CEO Von Leh primarily blamed the setback on S&P's mishandling of Bitcoin (BTC).
Beyond continued leadership and overall growth, he offered few concrete examples of Strategy's plans to address S&P's concerns, arguing that S&P needs to treat Strategy's BTC holdings as “true capital” in order to upgrade the stock's rating.
Buying slows and people are coasting on Bitcoin
Finally, Saylor answered various questions regarding the slowing pace of the company's BTC acquisitions. In his view, if a company does not raise additional funds to purchase BTC, it is “coasting.”
In Saylor's mind, coasting means capitalizing on existing BTC holdings, which in his opinion are assets that will grow by 30% every year for the foreseeable future.
In fact, even CEO Le predicts that BTC price will reach $150,000 by December 31, 2025. This is a prediction that digital currencies will rise. 36% within 2 months.
In Thaler's view, coasting is a good default mode that allows Strategy to wait patiently for opportunities and remain focused on selling its four existing preferred stocks (STRK, STRF, STRD, STRC) to credit investors in domestic and international markets.
