Shares in MicroStrategy (NASDAQ:MSTR) stock, a software company that has become a major holder of Bitcoin (BTC-USD), fell 7% overnight after missing earnings estimates.
The company took a “digital asset impairment charge” of $191.6 million, resulting in an operating loss of $53.1 million or $3.09 per share.
MSTR stock was trading early today for about $1,200 per share, a market capitalization of $21.4 billion.
Accounting for Bitcoin
MicroStrategy chose not to adopt a new digital asset accounting standard.
As a result, it valued its Bitcoin holdings at $23,680 each, about $5.1 billion. Had it changed to the new standard, its Bitcoin would have been valued at $71,028 each, or $15.1 billion.
CFO Andrew Kang told the company’s conference call MicroStrategy does plan to adopt the new accounting rule. It has until January to do so.
As a result, analysts called the loss a technicality. Under CEO Michael Saylor, MicroStrategy has become a leveraged bet on the price of Bitcoin. Bitcoin was selling for about $61,300 early on April 20.
Using the new standard would have allowed MicroStrategy to report a profit, but that might also be misleading. At the end of the quarter, the price of Bitcoin was about $10,000 higher than the current price. In 2024, MicroStrategy bought 25,250 bitcoins at an average price of $65,232 each.
Had MicroStrategy used the new accounting rules, it would have had four straight quarters of profit. This would make it eligible for inclusion in the S&P 500. Its inclusion would force index funds tied to the S&P 500 to buy the stock.
MicroStrategy now owns 214,400 Bitcoin, more than 1% of all the Bitcoin that can exist under its algorithm.
MSTR Stock: What Happens Next?
Canaccord Genuity cut its price target on MicroStrategy from $1,810 to $1,590 per share after earnings. Tipranks counts four analysts following MicroStrategy, all with buy recommendations. The average price target is $1,733.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
