MicroStrategy announced a loss in the fourth quarter. Blame Bitcoin.

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MicroStrategy’s revenue report matters less than Bitcoin’s value. The time of dreams

MicroStrategy reported a net loss of $90 million or $8.43 per share in the fourth quarter, missing consensus estimates for earnings of 89 cents per share.

The loss appears largely due to MicroStrategy (ticker: MSTR) including $147 million in impairments on its Bitcoin. That more than wiped out the company’s $110.5 million gross profit from its software business.

The shares fell 0.8% in after-hours trading to around $370.

MicroStrategy is now largely a bet on Bitcoin. The company has used proceeds from convertible debt and equity offerings throughout 2021 to continue adding to its Bitcoin collection. The company purchased over 10,300 Bitcoins during the quarter and another 660 in January, bringing its total to 125,051 Bitcoins.

“Today, MicroStrategy is the largest publicly traded Bitcoin-owning company in the world,” CEO Michael Saylor said in an earnings statement. “We will continue to evaluate opportunities to raise additional capital to execute our Bitcoin acquisition strategy.”

The company said in its earnings report that its average cost was $30,159 per part for a total cost of $3.7 billion. At a recent price of $38,800 a coin, its tokens were worth $4.85 billion as of Tuesday.

MicroStrategy had come under scrutiny from Securities and Exchange for its Bitcoin accounting. The SEC had objected to MicroStrategy’s exclusion of impairment charges on Bitcoin holdings from its non-GAAP operating profit. The company said it would include the charges in a response to the SEC.

MicroStrategy’s losses might look worse than they really are. The company is required to take impairment losses on its Bitcoin if the price falls below its book value during the quarter, according to BTIG analyst Mark Palmer. Losses cannot be reversed even if the price subsequently recovers, Palmer wrote in a recent note.

“We consider the impact of charges arising from such write-downs to be virtually meaningless to MSTR’s inherent value, which derives from the true value of its Bitcoin holdings as well as the value of its business intelligence software unit. “, Palmer said in a note. at the end of January.

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MicroStrategy’s equity value of $3.8 billion is now well below the market value of its Bitcoin, although that does not take into account nearly $2.2 billion in long-term debt, including convertible notes that can be converted into shares.

The stock has been hit hard by accounting issues and weak bitcoin prices this year. Bitcoin is down 17% in 2022, weighing on MicroStrategy stock, which is down 31% this year through Tuesday’s close.

Wall Street analysts disagree on MicroStrategy’s equity value. BTIG’s Palmer has a $950 stock target, for example, at the high end of the targets. In contrast, Jefferies analyst Brent Thill sees the stock at $405, while Canaccord Genuity analyst Joseph Vafi has a target of $871 on the stock.

The disparities reflect that Bitcoin could be worth $100,000, fall back to $20,000, or land somewhere in the middle. MicroStrategy is now like a stock option on that volatility, with the company appearing to invest cash flow and proceeds from its debt and equity offerings in crypto.

Write to Daren Fonda at [email protected]

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