MicroStrategy Inc. has posted its third consecutive quarterly loss, primarily due to an impairment charge on its substantial Bitcoin holdings. The company has a cryptocurrency stockpile valued at approximately $18 billion.
Despite these losses, the Virginia-based enterprise software company announced plans to raise $42 billion over the next three years. This amount includes $21 billion in equity and $21 billion in fixed-income securities, aimed at purchasing more Bitcoin. Following this news, MicroStrategy’s shares fell around 4% in late trading.
Focus on Shareholder Value
“Our goal is to create more value for our shareholders by leveraging the digital transformation of capital,” said Phong Le, President and CEO of MicroStrategy. “As a Bitcoin treasury company, we will use the additional capital to acquire more Bitcoin as a reserve asset.”
Decline in Software Revenue
In the third quarter, MicroStrategy’s revenue from its software business decreased by 10%, totaling $116.1 million. This figure fell short of analysts’ expectations of $122.5 million. The company reported a net loss of $340 million, compared to a loss of $143.4 million during the same quarter last year. Additionally, MicroStrategy took a $412 million impairment charge this quarter.
Strong Performance Amid Losses
Thanks to its Bitcoin investments, MicroStrategy has outperformed many major U.S. stocks, including AI leader Nvidia Corp., over the past two years. The company’s shares have recently reached new 52-week highs as Bitcoin prices have surged closer to their all-time high set in March. Year-to-date, MicroStrategy’s shares have increased by nearly 300%, significantly outperforming Bitcoin’s roughly 70% rise. This success is attributed to Chairman Michael Saylor’s leveraged investment strategy.
Funding Bitcoin Purchases
MicroStrategy raises funds through financial instruments like convertible notes to finance additional Bitcoin purchases. The company started buying Bitcoin in 2020 and has become the largest publicly traded corporate holder of the cryptocurrency.
Implications of Accounting Rules
Whenever MicroStrategy adopts a new accounting rule, it values its crypto assets at market prices at the end of each reporting period. This can lead to significant cash tax obligations.
However, new accounting regulations expected next year may turn MicroStrategy from a loss-making company into a profitable one. Currently, the company lists its Bitcoin assets at just under $6 billion, which is less than one-third of their current market value. These assets will be adjusted to reflect market prices.
While Saylor has gained recognition among digital-asset advocates, few public companies in the U.S., aside from Tesla Inc. and a few crypto-related firms, hold such volatile cryptocurrencies on their balance sheets.
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