MicroStrategy’s software business turns profitable as Bitcoin Stash appreciates
MSTR revenue outlook
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Micro strategy
Steady progress in the business analytics division, which seeks to transition customers to recurring Internet-based subscriptions — known as the software-as-a-service model — from locally licensed programs should pay off, according to Joe Vafi, CEO of Canaccord Genuity. Although the business is relatively mature, it is “very sticky with good margins”, he adds.
Although fourth-quarter revenue is expected to fall about 3% to $130 million, according to consensus data compiled by FactSet, the company is on track to report net income of $10.7 million after losing $90 million a year earlier. The last time it turned a profit was in the last quarter of 2020, when it earned $2.7 million.
On the adjusted basis used by Wall Street analysts, MicroStrategy is expected to earn 98.3 cents per share, Bloomberg data show.
As far as investors are concerned, the software business plays second fiddle to the company’s bitcoin strategy, which is essentially buy and hold the senior cryptocurrency. Microstrategy sold some for the first time in December, a tax-cutting strategy that was offset by purchases in the 4th quarter. It liquidated 704 bitcoins on Dec. 22 at an average price of $16,776, but bought back 810 for $16,845 each two days later, according to an SEC filing. It also disclosed that it had purchased 2,395 coins in November and December for $17,871 each.
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The tax sale — which is not subject to the wash rules that would deny a deduction for an immediate repurchase of securities — could have generated a short-term capital loss of $770,880, calculated Brian T. Stoner, a certified public accountant in Los Angeles. last year. It could be used to offset capital gains in 2022 or 2023, he said.
After the announced Q4 transactions, MicroStrategy was left with 132,500 bitcoins, bought for an average price of $30,397 on December 28 and now worth nearly $3.2 billion With the cryptocurrency trading near $24,000 today, all the purchases in 4 .quarter became profitable, and the company can become profitable. wants to book some of the December losses against acquisitions made in 2021, when it paid an average price of $49,229, Steven Chung, a tax attorney in Los Angeles, said last year.
Given the stable business, MicroStrategy shares tend to trade in line with bitcoin. The stock topped $500 a share in late March, then cratered with the crypto selloff, ending the year at $141.57. It has since recovered to $291 as bitcoin rose from under $16,000 to today’s price.
Not only does MicroStrategy trade in bitcoin, its holdings command a premium, according to Canaccord Genuity. Traditionally, the firm says, reflecting the stock’s value as a proxy for bitcoin without the hassle of establishing a crypto wallet and the security risks that exist for cryptocurrencies, draws for individual investors, but it believes institutions are also using the shares for strategies. which are more sophisticated than just buy and hold.
Canaccord noted that a buyer called Group One Trading notified the SEC that it had purchased a 13.5% stake in MicroStrategy’s common stock. It is not necessarily direct stock holding, it could have been obtained via derivatives, but it shows that relatively large open interest in options on the stock is a sign that institutional investors are using the company as a proxy for bitcoin in trading tactics.
