- Strategy held its Q3 earnings call focusing mainly on its new preferred stock, STRC.
- STRC has a market value of $2.7 billion but received significant attention compared to other company securities.
- The company increased STRC’s dividend rate to 10.5%, promoting its tax advantages as a “tax-equivalent yield” of up to 16.5%-20%.
- Strategy’s market-to-Net Asset Value (mNAV) multiple declined, with management open to stock buybacks if the ratio dips below 1x.
- Strategy continues to slow down Bitcoin purchases, expecting to rely on gains from its existing holdings while selling preferred shares to investors.
Strategy (formerly MicroStrategy) released its third-quarter earnings and held an extensive two-hour conference call. The discussion centered largely on its newest preferred stock, STRC, which its founder projects could serve up to one billion investors worldwide. The earnings report highlighted future possibilities rather than concrete performance results.
The company’s MSTR common stock showed a nearly flat movement over the 24-hour period surrounding the call, with a 6% gain at market open offset by previous losses and broader market trends. STRC, valued at approximately $2.7 billion, received significant focus despite being smaller than the company’s $77 billion in MSTR shares, $3 billion in other preferred stocks, and $8 billion in debt.
Founder Michael Saylor described STRC as “the company’s greatest feat of financial engineering to date” and announced plans to launch similar products on foreign stock exchanges. He emphasized the security’s high yield, initially at 10.25%, which he upgraded to 10.5% during the call. Saylor framed STRC as analogous to a high-yield bank account, stating “everybody in the world would love to have a high yield bank account that yielded 10% or more.” He also explained STRC’s dividend structure involves a return of capital (ROC), which offers tax-deferral benefits to long-term owners.
By presenting the dividend in terms of this tax treatment, Saylor described a “tax-equivalent yield” of 16.5% for investors subject to a 37% federal tax rate, suggesting the yield could effectively reach up to 20% depending on individual tax circumstances. More on STRC’s structure is detailed on the company’s website here.
Regarding corporate finance, Strategy said it does not plan to issue new debt and aims to convert existing debt into common shares through “equitization.” The company acknowledged a decline in its market-to-Net Asset Value (mNAV) multiple, currently at 1.31x, down from earlier levels. CEO Phong Le expressed openness to stock buybacks if this ratio falls below 1x, an option the firm has previously resisted.
When asked about its low-grade credit rating and exclusion from the S&P 500 Index, Le attributed both issues to Standard & Poor’s conservative assessment of Bitcoin holdings. He urged that Bitcoin assets be considered “true capital” to improve credit ratings and index eligibility.
The firm also addressed slower Bitcoin purchase activity. Saylor described the company as now “coasting,” relying on the appreciation of its existing Bitcoin assets, which he projects will increase by 30% annually. CEO Le forecasted Bitcoin reaching $150,000 by the end of 2025, representing a 36% rise from current levels in two months. Meanwhile, Strategy plans to focus on selling its four preferred stock types—STRK, STRF, STRD, and STRC—to credit investors domestically and internationally.
For further details, visit the Q3 earnings presentation and watch Saylor’s comments on STRC on CNBC.
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