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MicroStrategy's adjusted earnings beat forecasts with bitcoin holdings little changed

MicroStrategy's (MSTR) adjusted third-quarter earnings beat expectations on Tuesday, even as revenue fell short of forecasts. Its crypto holdings this quarter also played a minor role.

The company reported adjusted earnings of 96 cents per share, versus the Bloomberg consensus estimate of 44 cents apiece. Revenue came in at $125.4 million, slightly lower than the $127.25 million analysts expected.

The carrying value of MicroStrategy’s digital assets was $1.99 billion, which reflected a cumulative impairment loss of $1.99 billion since first acquiring bitcoin in August 2020 and is little changed for the quarter.

MicroStrategy shares rose 3% in after-hours trading after selling off 3.8% on the day. Through Tuesday's close, the stock is down 52.7% year to date.

Losses in the quarter totaled $93.9 million, with $93.2 million attributed to operating expenses and $700,000 to its bitcoin holdings, a far cry from the $917 million bitcoin impairment for the previous quarter.

Headquartered in Northern Virginia, the enterprise cloud platform is now the largest corporate bitcoin holder and faced headwinds against the falling price of bitcoin in the previous quarter. Its BTC holding currently incur a 50% unrealized loss over its total investment into the cryptocurrency.

"We incurred a minimal bitcoin impairment charge as bitcoin prices were stable during the third quarter, and were encouraged by FASB’s recent announcement of its support for fair value accounting for bitcoin," said Andrew Kang, Chief Financial Officer of MicroStrategy.

"If finally adopted and implemented, we believe fair value accounting will improve upon the current, unfavorable intangible accounting treatment applicable to bitcoin holdings and will promote additional institutional adoption of bitcoin as an asset class,” said Kang added in the release.

BRAZIL - 2022/05/10: In this photo illustration, the MicroStrategy Incorporated logo seen displayed on a smartphone screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
BRAZIL - 2022/05/10: In this photo illustration, the MicroStrategy Incorporated logo seen displayed on a smartphone screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

Based on Generally Accepted Accounting Principles (GAAP), MicroStrategy must account for its bitcoin purchases by recording their initial cost with a mark down if bitcoin's value declines. Bitcoin's year-to-date low was set in June, so the company's third-quarter losses were little impaired for holding the asset.

While not reflective of the company’s bitcoin holdings at market value, the impairment is a profit-and-loss risk for other public companies considering the same strategy, according to Mark Palmer, a senior equities analyst with BTIG.

But the practice is likely to change in the coming months as the Financial Accounting Standards Board (FASB) is in talks to propose changes to allow U.S. publicly-traded companies to account for digital assets at fair value.

MicroStrategy ended Q3 with approximately 130,000 bitcoins on its balance sheet, acquired at an aggregate purchase price of $3.98 billion and an average price of $30,639 per bitcoin.

  • Revenue: $125.25 million versus consensus estimates of $127.25 million

  • Adj. Earnings per share: $0.96 vs. the estimate of $0.44

  • GAAP value of digital asset holdings: $1.98 with $1.99 impairment loss for a total of 130,000 bitcoins

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