On July 31, MicroStrategy (MSTR) published explicit forward guidance, “We will not issue MSTR below 2.5x mNAV except to pay interest and dividends.” Fast forward to this morning, and founder Michael Saylor has modified that guidance entirely, allowing dilution of MicroStrategy shareholders “when otherwise deemed advantageous to the company.”
That remarkable about-face leaned heavily on the boilerplate disclaimer in its Q2 earnings that states, “Actual results may differ materially from these forward-looking statements.”
MicroStrategy is the world’s largest bitcoin treasury company, holding $73 billion worth of BTC. Unlike most companies, investors primarily value its common stock not on a traditional earnings multiple but, instead, on a multiple to Net Asset Value or ‘mNAV.’
Over time, the company has sold various forms of debt and dividend-yielding preferred shares to raise cash to buy bitcoin. These non-dilutive sales accrete bitcoin holdings for MSTR shareholders and rank among the top reasons why investors pay extra for MSTR versus its holdings.
Currently, this mNAV value is 1.62. In other words, MicroStrategy’s Enterprise Value is 62% more than its BTC holdings.
However, MicroStrategy sometimes directly dilutes MSTR to buy BTC. Executives try to cast this exercise in a positive light, calling it ‘accretive dilution’ because selling shares at an mNAV above 1 and buying BTC with those proceeds increases the quantity of BTC holdings per share.
Of course, accretive dilution reduces mNAV itself. In the first place, MicroStrategy’s mNAV only persists above 1 because investors are bullish about executives’ ability to buy BTC through non-dilutive strategies.
Read more: MicroStrategy dilutes its shareholders to buy more bitcoin
MicroStrategy dilution below 2.5x mNAV
Within the past couple years, this mNAV has even exceeded 3.4. Of course, that multiple has halved since November 20, 2024.
To calm fears about ongoing dilution of MSTR as this mNAV has declined, executives issued forward guidance on July 31. Two weeks ago, the company said it would not dilute common shareholders below a 2.5 mNAV “except to pay interest and dividends.”
Interest refers to the USD coupon payments on the company’s $8.2 billion worth of notional corporate debt. Dividends refer to the USD yields payable to the company’s four types of preferred shareholders: STRK, STRF, STRD, and STRC.
This morning, Saylor posted to X that his 2.5 mNAV guidance is off the table. He has added a third, eminently vague possibility in addition to interest and dividend payments.
‘When otherwise deemed advantageous’
According to his revised slide, MicroStrategy will retain its right to increase the supply of MSTR “to provide greater flexibility in executing our capital markets strategy.”
Specifically, he has added a third clause on MicroStrategy shareholder dilution in addition to interest and dividend obligations. Going forward, MicroStrategy will dilute MSTR between a 1x and 2.5x mNAV “when otherwise deemed advantageous to the company.”
Moreover, the company has replaced the sentence on slide 96, “We will not issue MSTR below 2.5x mNAV except to pay interest and dividends.” In its place, the company now merely rambles, “We believe shareholders benefit from management flexibility in executing our capital markets strategy.”
