MicroStrategy’s Bitcoin Bet on Verge of Accounting Windfall for Investors
(Bloomberg) MicroStrategy Inc. may be at an inflection point when it comes to Michael Saylor’s controversial decision almost four years ago to bet the enterprise-software maker’s future on Bitcoin.
The recently approved accounting rule change is expected to make MicroStrategy's quarterly results more volatile. Under the new rule, the company is required to value its Bitcoin holdings at market prices, potentially leading to significant fluctuations in reported values. Previously, MicroStrategy had to take impairment charges for Bitcoin depreciation but couldn't recognize increases.
If MicroStrategy decides to adopt the revision for the fourth quarter, the company's Bitcoin value on the balance sheet will increase significantly due to recent purchases and Bitcoin's rally. However, analysts anticipate that the reported results will show a loss of around $5.8 million.
MicroStrategy, based in Tysons Corner, Virginia, became the first public company to invest in Bitcoin as a capital allocation strategy in 2020. Co-founder and chairman Michael Saylor emphasized the need to embrace this policy for the company's survival. While Saylor's strong support for Bitcoin has gained him admiration in the digital asset community, it has not been universally embraced by the institutional investment community.
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Despite the fluctuating Bitcoin prices impacting quarterly results, investors who have kept faith in Saylor have been rewarded with MicroStrategy shares surging over 300% since July 2020. The company's Bitcoin holdings, listed at $1.8 billion at the beginning of the year, are expected to be updated to around $8 billion, aligning more closely with the company's market capitalization.
The change in accounting rules is only part of the story, as MicroStrategy added over 30,000 Bitcoin in the quarter, worth over $1 billion by the end of December. The company is projected to report revenue of about $133 million, with flat revenue growth expected in the future. Analysts anticipate that MicroStrategy's bottom line will be more exposed to the volatile price of Bitcoin.
The additional volatility risk coincides with increased competition for investors, as several spot Bitcoin ETFs debuted in January, reducing MicroStrategy stock's premium in relation to Bitcoin. Investors can now gain exposure to Bitcoin through these ETFs without directly purchasing the cryptocurrency.
MicroStrategy has not commented on when it will implement the new accounting rules, but analysts suggest that adopting them would be in the company's best interest, given their previous advocacy for the change.