MicroStrategy Reports Record Q4 Loss: Says It Has No Plans To Stop BTC Trading

MicroStrategy, a provider of business intelligence applications, is in the news after itIt is the eighth consecutive quarterly loss in its Bitcoin holdings.

According to the recent release of MicroStrategy Financial report for the fourth quarter of 2022, the company posted a loss of $193.7 million compared to a fourth-quarter 2021 loss of $137.5 million. Compared to the fourth quarter of 2021, which posted a net loss of $90.0 million, or $8.43 per share on a diluted basis, the fourth quarter of 2022 posted a net loss of $249.7 million, or $21.93 per share.

Being the largest public holder of Bitcoin in recent years has made MicroStrategy better known. Analysts anticipated net income of $10.7 million, which might have been the only quarterly gain after the fourth quarter of 2020.

MicroStrategy reports an impairment loss of $1.3 billion

According to Q4 financial results, MicroStrategy currently has 132,500 Bitcoins valued at $1.840 billion. It represents $2.153 billion in impairment losses since the acquisition and an average book value per Bitcoin of around $13,887. Additionally, MicroStrategy suffered impairment losses on Bitcoin totaling $197.6 million in Q4 2022 versus $146.6 million in the same period a year earlier.

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

To manage a tax loss of $34 million, the company sold 704 BTC for the first time last quarter. However, the firm increased its overall Bitcoin holdings by adding 2,500 BTC after the sale.

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

MicroStrategy clarification on future BTC trading

In a sentence, Andrew Kang, CFO of MicroStrategy, stated that,

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

Furthermore, he said that his corporate strategy and conviction to maintain, acquire and improve his position in Bitcoin remained the same. Since noticing currency headwinds the year before, they have shifted to higher quality recurring revenue with scalable cloud businesses.

Michael Saylor, co-founder and CEO, previously tweeted that his public profile had risen as a result of the BTC purchase. In August, Saylor stepped down as CEO to focus on the company’s Bitcoin strategy and other Bitcoin sponsorships.

MicroStrategy Bitcoin Investment History

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

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

In a conversation, Michael Saylor mentioned that one of the most important benchmarks he uses to assess the performance of his stock portfolio is Bitcoin. Unlike Bitcoin’s price, which has risen 98% over the same period, the company’s shares have risen 117% since August 2020, he continued.

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

The company’s significant writedowns of Bitcoin have also raised questions about how cryptocurrencies should be disclosed on a publicly traded company’s balance sheet.

Cryptocurrency holdings are currently required to be recorded as intangible assets, which means that when prices drop, the value must drop to the lowest price point for the period. Alternatively, until they are sold, those assets cannot be flagged when prices rise.

According to the Financial Accounting Standards Board, which recently voted on Wednesday to release a proposal for public comment before next month, they will present guidelines for companies to value some cryptocurrencies at fair value like stocks. Treatment will likely change by the end of 2024.

Microstrategy analysis

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

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

MicroStrategy shares typically trade in line with Bitcoin prices due to the stability of its business. Shares peaked at over $500 a share in late March before crashing during the cryptocurrency sell-off to end the year at $141.57. Since then, as the price of Bitcoin has risen from below $16,000 to the present, it has recovered to $291.

MicroStrategy’s revenues increased 0.05% per year over the previous five years. Simply put, that growth rate could be more impressive. The share price, which has risen 14% annually for the past five years, likely largely reflects the modest growth. The underlying business must aim to accelerate revenue growth.

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