MicroStrategy Reports Record Fourth Quarter Loss – Says No Plan To Stop BTC Trading

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MicroStrategy, a business intelligence application provider, is making news after its eighth consecutive quarterly loss in its Bitcoin holdings.

According to MicroStrategy’s recently released Fourth Quarter 2022 Financial Report, the company has recorded a loss of $193.7 million as opposed to the fourth quarter of 2021’s loss of $137.5 million. Comparing the fourth quarter of 2021, which had seen a net loss of $90.0 million, or $8.43 per share on a diluted basis, the fourth quarter of 2022 saw a net loss of $249.7 million, or $21.93 per share.

Being the biggest public Bitcoin holder in recent years has made MicroStrategy more well-known. Analysts anticipated a net income of $10.7 million, which might have been the only quarterly profit after the fourth quarter of 2020.

MicroStrategy Reports Impairment Loss of $1.3 Billion

According to quarter four financial results, MicroStrategy currently has 132,500 Bitcoins valued at $1.840 billion. It accounts for $2.153 billion in impairment losses since acquisition and an average carrying value per Bitcoin of about $13,887. In addition, MicroStrategy suffered impairment losses on Bitcoin totalling $197.6 million in the fourth quarter of 2022 versus $146.6 million in the same period the previous year.

The market value and original cost basis of MicroStrategy’s Bitcoin were $3.993 billion and $2.194 billion, respectively, as of December 31, 2022. Thus, it results in a market price per Bitcoin of $16,556.32 and an average cost of roughly $30,137.

To manage a $34 million tax loss, the company sold 704 BTC for the first time last quarter. However, the business increased its overall Bitcoin holdings by adding 2500 BTC after the sale.

Executive Chairman Michael Saylor stated during the earnings call that since adding Bitcoin, the company had outperformed popular indices and businesses like Google, Apple, Microsoft, and Amazon.

MicroStrategy Clarification on Future BTC trading

In a statement, Andrew Kang, the chief financial officer of MicroStrategy, stated that,

“We may consider pursuing additional transactions that may take advantage of the volatility in Bitcoin prices or other market dislocations that are consistent with our long-term Bitcoin strategy,”

Additionally, he said that their corporate strategy and conviction in maintaining, acquiring, and enhancing their Bitcoin position had stayed the same. Since they noticed foreign exchange headwinds the previous year, they have switched to higher-quality, recurring revenues with scalable cloud businesses.

Michael Saylor, co-founder and executive chairman, tweeted earlier that their public profile had increased as a result of buying BTC. In August, Saylor left his role as CEO to focus on the business’s Bitcoin strategy and other Bitcoin endorsements.

MicroStrategy Bitcoin Investing History

It was in August 2020 when MicroStrategy first bought its Bitcoin for 21,454 BTC using what it referred to as a “capital allocation strategy.”

In a February 2023 presentation, Kang stated that the company has been stockpiling Bitcoins, and as of 24 December 2022, it had 132,500 BTC valued at $4.027 billion.

In a conversation, Michael Saylor mentioned that one of the most significant benchmarks he uses to assess the performance of his stock portfolio is Bitcoin. In contrast to the price of Bitcoin, which has increased by 98% during the same time period, the company’s stock has increased by 117% since August 2020, he continued.

According to an SEC filing, MicroStrategy also sold Bitcoin for the first time during the fourth quarter, harvesting its losses to reduce capital gains tax.

The company’s significant write-downs of Bitcoin have also raised questions about how cryptocurrencies ought to be disclosed on the balance sheet of a publicly traded company.

Cryptocurrency holdings are currently required to be recorded as intangible assets, meaning that when prices decline, the value must be reduced to the lowest price point for the period. Alternately, until they are sold, those assets cannot be marked up when prices increase.

According to the Financial Accounting Standards Board, which recently on Wednesday voted to release a proposal for public comment by next month mentioned, they will come up with guidelines for corporates to value some crypto at a fair value like stocks. The treatment will probably change by the end of 2024.

MicroStrategy Analysis

Due to MicroStrategy’s current loss, most analysts would focus on revenue growth to determine how quickly the underlying business is expanding. Investors in unprofitable businesses typically anticipate rapid revenue growth. Some businesses are willing to put off profitability to increase sales more quickly, but in that case, solid top-line growth is still to be expected.

However, general market jitters have had an effect on the share price. In the event that there is a good opportunity, so keep an eye on the fundamentals. Investors with a longer time horizon would be more relaxed because they would have made 14% per year over a five-year period. The current sell-off might present an opportunity worth considering if the fundamental data point to long-term sustainable growth.

MicroStrategy shares typically trade in line with Bitcoin prices due to the stability of its business. The stock peaked at over $500 per share in late March before collapsing during the crypto sell-off to end the year at $141.57. Since then, as Bitcoin’s price increased from below $16,000 to the present, it has recouped to $291.

Revenue at MicroStrategy increased by 0.05% annually over the previous five years. Simply put, that growth rate could be more impressive. The share price, which has increased 14% annually over the past five years, likely reflects the modest growth in large measure. The underlying business should aim to accelerate revenue growth.