Even though bitcoin (BTC-USD) surged nearly 70% in Q1, MicroStrategy turned in a wider-than-expected loss for the three-month period as current accounting rules resulted in a large impairment charge against the value of its bitcoin stash. MSTR dropped 17% in Tuesday afternoon trading, but still remained 70% higher so far this year.
The business intelligence company, run by bitcoin (BTC-USD) advocate Michael Saylor, did not opt for early adoption of new accounting rules whereby MSTR could recognize any gains in its bitcoin holdings. Instead, it stuck to current requirements and recorded a digital asset impairment loss of $191.6M in Q1, as its bitcoin buying spree continued.
However, there were some positives in the report, amid MSTR’s transition to a recurring subscription cloud-based revenue model, including 30% annual growth in subscription billings and a 22% Y/Y increase in subscription services revenues.
In its Q1 earnings conference call, MicroStrategy (NASDAQ:MSTR), the world’s largest corporate holder of bitcoin (BTC-USD), highlighted the benefits of accessing capital markets to buy the token as a capital allocation strategy and why its stock warrants a premium to net asset value.
“While the overall market benefited from the increase in Bitcoin price as well, we believe our opportunistic use of leverage and excess cash to acquire Bitcoin, as well as our capital market strategy generated $1.8 billion of incremental shareholder value,” said President and CEO Phong Le.
BTIG analyst Andrew Harte thinks MSTR is a better way for investors to gain exposure to bitcoin (BTC-USD) than alternatives, such as spot bitcoin ETFs, due to: “1) the company’s ability to leverage capital markets to purchase additional bitcoin, 2) cash flow from its BI software business to acquire more bitcoin, 3) derivatives on the stock that provide investors with risk-management opportunities, and 4) ease of access compared to directly purchasing BTC.”
“We have harnessed volatility, and we’ve also harnessed our unique ability to issue securities such as convertible bonds,” Michael Saylor, founder and executive chairman, said in the call. “And the fact that we embrace the securitization of Bitcoin and we embrace the volatility of the asset class has given us the ability to raise capital, right?”