Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• MicroStrategy Inc (NASDAQ:MSTR) reported a 50% year-over-year increase in subscription billings and a 48% increase in subscription services revenues, indicating strong growth in their cloud platform.
• The company successfully adopted FASB's fair value accounting standard for Bitcoin holdings, leading to a significant increase in retained earnings.
• MicroStrategy Inc (NASDAQ:MSTR) was included in the NASDAQ 100 index, enhancing its visibility and institutional adoption of its Bitcoin strategy.
• The company raised $18.8 billion in net proceeds through equity offerings and $6.2 billion through convertible notes, showcasing strong capital market execution.
• MicroStrategy Inc (NASDAQ:MSTR) introduced innovative financial instruments like the STRK preferred stock, broadening its investor base and offering lower volatility exposure to Bitcoin.

Negative Points

• Total software revenues decreased by 3% year-over-year in Q4 and 7% for the full year, reflecting challenges in transitioning from on-premise to cloud services.
• Operating expenses for the software business increased by 2% year-over-year, indicating rising costs amidst revenue declines.
• The company recognized a $1 billion digital asset impairment charge in Q4, highlighting the volatility and risks associated with Bitcoin holdings.
• MicroStrategy Inc (NASDAQ:MSTR) faces potential risks from unrealized capital gains tax on crypto assets, which could impact its growth strategy.
• The company's heavy reliance on Bitcoin exposes it to significant market volatility, which could affect its financial stability and investor confidence.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with MSTR.

Q: Could you elaborate on the flexibility for the strike dividend to be paid out in cash or in common stock, and how do you plan to fund the dividends going forward? A: Andrew Kang, CFO, explained that the strike convertible preferred is a creative tool for raising capital. The company will use all capital sources, including the ATM, to pay dividends, not relying solely on cash from operations. With over $20 billion raised since Q4, the $14 million quarterly dividend obligation for strike is manageable. The company is confident in its ability to pay these dividends perpetually.

Q: What are the company's latest thoughts on the taxes on unrealized capital gains, and what steps are being taken to mitigate this risk? A: Michael Saylor, Executive Chairman, stated that there is no broad-based support for an unrealized capital gains tax on crypto assets for large corporate holders. If such a tax were implemented, it would be a nuisance but not significantly impact their strategy. The company is in dialogue with the IRS and other stakeholders and remains confident in managing this issue.

Q: How does the company view its leverage targets and debt coverage? A: Andrew Kang, CFO, noted that the company measures leverage risk against its debt coverage ratio, which remains strong. The current leverage ratio is below the long-term target of 20-30%, providing capacity to expand the capital structure prudently. The company maintains significant debt coverage with $47 billion in Bitcoin holdings against $3 billion in convertible debt.

Q: Can you discuss the impact of the new FASB fair value accounting rule on your Bitcoin holdings? A: Andrew Kang, CFO, explained that starting Q1 2025, the company will reflect the impact of the new FASB fair value accounting rule for Bitcoin holdings as part of net income. This change resulted in a positive cumulative adjustment to retained earnings of approximately $12.7 billion due to the higher market value of Bitcoin compared to its carrying value.

Q: What are the strategic benefits of the company's rebranding to "Strategy"? A: Michael Saylor, Executive Chairman, highlighted that the rebranding to "Strategy" simplifies the company's identity, making it easier to remember and align with its focus on Bitcoin. The new brand reflects the company's ambition and broad appeal, tying its identity more closely to Bitcoin and enhancing communication with a global audience.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.