Analysis: Michael Saylor's preferred stock financing model may cause Strategy to fall into a "death spiral"

Deep Tide TechFlow news: On June 09, an article by Fortune magazine analyzed that, although Bitcoin’s recent decline has weighed on the share price of Strategy (MSTR), the company’s current market capitalization still trades at a premium of about 31% over its underlying net asset value. The analysis holds that this premium comes from the market’s past recognition of Michael Saylor’s “Bitcoin value appreciation flywheel” model; however, as the model fails, the related premium faces further compression risk.

Based on calculations, Strategy currently holds about 844,000 Bitcoins. At $60,500 per coin, their value is about $51.1 billion. Adding its software business and cash assets, total assets are about $53.6 billion. After deducting liabilities such as about $6.7 billion in convertible bonds and $15.5 billion in preferred stock, net assets attributable to common shareholders are about $31.8 billion. However, as of June 5, the company’s market capitalization is still $41.6 billion—about $1.0 billion higher than its net assets.

The analysis suggests that, to pay the continually growing preferred-share dividends, Strategy may need to keep issuing more preferred stock and even sell part of its Bitcoin assets in the future. This could create a negative cycle of “issuing preferred stock—paying dividends—further financing,” commonly referred to as a “Death Spiral.”