FAQ

Intrinsic value is a term I use to refer to how much the common stock, MSTR, has value if the company was liquidated. Convertible debt and preferred shares are higher in the capital stack, so they would be paid first and then the rest would go to common stock. In common finance language it is basically the same as equity value. I use the term intrinsic value though because my framework is inspired by Josh Mandell (@JoshMandell6 on X) who articulated that a given company's stock is a perpetual option for its assets after its liabilities; in options world an option has intrinsic value when the underlying stock's price is above the options exercise price. And while a common stock can't be exercised for company's assets, the equity value can still be thought of as a (soft) floor for the stock's valuation, an "intrinsic value" floor. Then the value above the intrinsic value is market's assigned premium (or discount if it's really pessimistic) based on its expectations on value creation. In options it is called time value, though an option has an expiry date while a stock has none – a perpetual option.

In the past the raw bitcoin per share was suitable on its own to measure MSTR's value when they only used the common at-the-market offerings and convertible debt to acquire bitcoin (convertibles are basically delayed common share issuance, with the assumption that the common reaches the convertible note's conversion price). But now that the company is shifting its capital structure to acquire bitcoin with preferred shares, I find that using bitcoin per share alone misses the nuance of seniority in the capital stack from preferred shares. Equity value captures this better. MSTR is also fairly straightforward to evaluate this way since it is an asset heavy company which means that future cash flows (their software business is tiny compared to their bitcoin holdings) are not a factor for measuring MSTR's equity value. Future MSTR equity value is then a function of bitcoin price development and the demand for Strategy's preferred shares and furthermore the interest rate of STRC, their most popular and impactful preferred product.