Strategy (formerly MicroStrategy) released Q3 earnings yesterday, spending vast amounts of time on its newest, most complex (and relatively small) preferred stock, a quasi-pegged STRC that its founder somehow believes will come to serve 1 billion people.
Based on the 6% gain in its stock price at this morning’s open, it would be easy to conclude that yesterday’s earnings call for Strategy went well.
However, reducing that figure by 7% for its single-day loss during yesterday’s trading session, not to mention 1% for this morning’s broad gain across all Nasdaq stocks, and Strategy’s MSTR common stock is actually relatively flat over the past 24 hours.
Its muted performance reflects the nature of yesterday’s two-hour earnings call that emphasized future possibilities over tangible results from the company.
In particular, Saylor pulled STRC front and center throughout the call, spending more time on the small preferred than the company’s most important stock, MSTR.
He called STRC the company’s “greatest feat of financial engineering to date” and gushed over plans to launch lookalike versions on multiple stock exchanges abroad.
Dwarfed in size by the company’s $77 billion worth of MSTR plus $3 billion worth of other preferreds and $8 billion worth of debt, STRC’s mere $2.7 billion market capitalization earned over half an hour of airtime to an estimated 25,000 attendees across Zoom, X livestreams, YouTube, and other social media.
Saylor predicted that new versions of STRC would somehow provide a comfortable retirement for every accredited investor in the world. Somehow, he pegged the total addressable market for the investment at 1 billion people.
He repeated his incredible likening of STRC to a savings product, saying “everybody in the world would love to have a high yield bank account that yielded 10% or more.”
Not backing down from the obvious risks of that comparison, he upgraded STRC’s 10.25% yield yesterday to 10.5%.
Whatever it takes to push Strategy’s STRC dividend rate up
Finally, he advertised the percentage as an even higher figure by focusing on STRC’s return of capital or “ROC” dividend structure, which passes tax deferred benefits onto long-term holders.
Providing forward guidance that Strategy would preserve ROC dividends for all of its preferreds for at least 10 years, Saylor transformed STRC’s 10.5% dividend rate into a “tax-equivalent yield” of 16.5%, which he defined as the “annualized coupon rate on an instrument for a U.S. individual to achieve the same after-tax effective yield assuming a 37% federal marginal tax rate and return of capital treatment on Strategy dividends.”
In a breathless moment on CNBC TV, Saylor even claimed that STRC could offer a tax-equivalent yield of 20%, depending on someone’s tax situation. “It’s like a bank that pays you 20% interest,” he said in reference to STRC.
Protos previously covered the incredible risks and very non-bank-like characteristics of STRC.
Despite these risks, on yesterday’s earnings call, Saylor recommended STRC “for your family treasury” among various examples of potentially suitable investors, and for the type of money that “you probably need to spend in six or 12 months.”
Beyond STRC, which dominated the conversation, Strategy forecasted zero new issuances of corporate debt. It claimed that it would also look to “equitize” its existing debt by encouraging debtholders to convert into common stock.
Read more: Strategy hasn’t sold any STRC through ATM since July
Addressing Strategy’s devastating mNAV decline
In an unusual admission, the company admitted that it’s not entirely opposed to the idea of a stock buyback if shares were to trade below a 1x multiple-to-Net Asset Value (mNAV).
Strategy’s mNAV has been declining all year, and one analyst questioned whether the company would step into the market to stop the decline if the multiplier continued to decline from the current 1.31x to less than 1x.
Although Saylor has historically hesitated to even admit the possibility of defeat, he conceded yesterday that he would evaluate the option of a buyback, if such a time came.
On the topic of its Junk rating by an analyst at S&P and its initial denial for inclusion into its prestigious S&P 500 Index, Strategy CEO Phong Le mostly blamed S&P’s poor treatment of bitcoin (BTC) for those setbacks.
Offering few concrete examples of Strategy’s plans to remediate S&P’s concerns besides continued leadership and general growth, he claimed that S&P needs to treat Strategy’s BTC holdings as “true capital” in order to upgrade the stock’s rating.
Coasting on bitcoin as purchases slow
Finally, Saylor responded to various questions about the company’s slowing pace of BTC acquisitions. In his mind, if the company raises no additional capital to buy BTC, it is “coasting.”
Coasting, in Saylor’s mind, means riding the gains of its existing BTC holdings which, in his opinion, is an asset that will compound 30% annually for the foreseeable future.
Indeed, even CEO Le forecasted a BTC price of $150,000 by December 31, 2025 — a prediction that the digital currency will rally 36% within two months.
Coasting is an excellent default mode, in Saylor’s view, allowing Strategy to patiently wait for opportunities and continue to focus on selling its existing four types of preferred shares — STRK, STRF, STRD, and STRC — to credit investors in domestic and foreign markets.
