Translation: Discount for Lack of Marketability (DLOM) = Discount for Lack of Marketability.

Simplified definition: This is an accounting and financial measure used to reduce the estimated (book) value of shares or stakes in private companies (those not listed on open financial markets). In short, the idea is that an asset you cannot sell and convert into "cash" quickly and easily should be worth less than an equivalent asset traded daily on financial market screens. In other words, it is a "liquidity shortfall discount" imposed by accounting standards to ensure that the value of assets that are difficult to liquidate when needed is not overstated.

How does it work?: When a company or fund values its investment in a private company, it first calculates fair value based on market indicators or financing rounds. The financial auditor then applies a discount—often ranging from 10% to 30%—to that value. This discount represents the cost of time, effort, and risk involved in finding a buyer in an illiquid market, in addition to legal restrictions that may prevent the stake from being sold immediately.

Example (SASCO and xAI): The recognized value of SASCO’s stake in xAI—owned through an investment fund—was $36 million before the discount. Although this stake was converted into shares of SpaceX after xAI merged with it and SpaceX was listed on the Nasdaq market, SASCO cannot immediately liquidate these shares "at the push of a button" because they are restricted—there is usually a lock-up period for pre-IPO shares, in addition to the ownership being indirect through the fund. Therefore, international financial reporting standards required it to apply a "Discount for Lack of Marketability". The result? The recognized value in the financial statements was reduced to $28.8 million, representing a 20% discount. This difference is not a cash loss, but rather a conservative measure reflecting the inability to immediately liquidate the restricted share.

What does this mean for you as an investor reading the financial statements?

  • Conservatism and realism (investor protection): This discount protects you as a shareholder from being misled by astronomical figures and book profits that the company may not be able to realize in cash if it is forced to exit quickly. It provides a more conservative and realistic picture of the value of the assets.
  • Exit costs and liquidity crisis: It reminds you that these assets are "illiquid." If the company needed emergency liquidity and tried to sell this stake, it might have to accept a price far below the theoretical valuation because of the lack of ready buyers and market makers.
  • Non-cash earnings volatility: It shows you that earnings resulting from these valuations are "on paper." Any change in this discount or in the underlying valuation during the coming quarters will affect the company’s reported earnings up or down, without a single actual riyal entering or leaving the company’s treasury.

Frequently asked question: If a "Discount for Lack of Marketability" is applied and the value of the investment in the financial statements decreases, does that mean the company is losing money or that the investment has failed?

Answer: No, not at all. Applying this discount is simply compliance with strict accounting standards (such as IFRS 13), which prevent assets from being overstated. The investment may be excellent and growing strongly, and the company still owns the same stake in the shares. The only difference is that the accountant says: "Since we cannot sell these shares tomorrow on the open market, we will record them at a lower, more conservative value." It is worth noting that if this company (xAI) is listed on the financial market in the future through an initial public offering (IPO), this discount will disappear immediately, and the shares will be recorded at their full fair market value.