MicroStrategy Inc. is likely to show a return to profitability when reporting third-quarter results after co-founder Michael Saylor turned the enterprise-software maker into a Bitcoin investment vehicle.
(Bloomberg) — MicroStrategy Inc.
is likely to show a return to profitability when reporting third-quarter results after co-founder Michael Saylor turned the enterprise-software maker into a Bitcoin investment vehicle.
That’s a marked change from the loss of more than $1 billion posted in the prior three-month period, when an almost 60% plunge in the cryptocurrency required MicroStrategy to write down the value of its holdings.
Bitcoin rose 3.7% in the most recent quarter.
The respite may prove to be short. In coming quarters, MicroStrategy will most likely be reporting more volatile results under a proposed accounting rule change that would require valuing the digital asset at market prices.
Without standard accounting rules for cryptocurrency, the Tysons Corner, Virginia-based company has been classifying its Bitcoin holdings as intangible assets — similar to brand recognition or trademarks.
This designation forces MicroStrategy to permanently markdown the value of its holdings when the price of Bitcoin drops. Gains can only be recognized when coins are sold, which MSTR has yet to do.
That’s what prompted the almost $1 billion loss in the second quarter.
Under the proposed rules by the Financial Accounting Standards Board on Oct. 12, MicroStrategy would be able to notch Bitcoin’s more recent quarterly gain when it announces earnings Tuesday after the stock market closes.
The crypto industry has been pushing for the so-called fair value measurement for years.
Previously, the standards-setting board, FASB, said that new rulemaking wasn’t warranted since most companies didn’t hold a material amount of cryptoassets. That’s begun to change with MicroStrategy, payments firm Block Inc.
and carmaker Tesla Inc. holding significant Bitcoin assets.
The pending accounting change is a positive for the company, said Mark Palmer, an analyst at BTIG, who has a “buy” rating on the shares and a price target of $950.
“The impairment charges have been nothing but accounting noise.”
MicroStrategy began buying Bitcoin in the summer of 2020 as a hedge against inflation. Saylor stepped down in August as chief executive officer to focus on the company’s cryptocurrency strategy.
The 57-year-old, who assumed the title of executive chairman, is also facing tax fraud claims from the Attorney General for the District of Columbia for allegedly skipping out on paying more than $25 million in income taxes despite living in the district for more than a decade.
Saylor has disputed the allegations, saying he’s a resident of Florida.
MicroStrategy and its subsidiaries hold about 130,000 Bitcoin, which were bought for about $30,639 per token, according to a September regulatory filing.
MicroStrategy’s aggregate holdings have dropped in value by about $1.3 billion, or around 33% since it first started buying the virtual currency.
The company’s shares have closely tracked Bitcoin’s price moves.
In 2020, shares surged more than 170% as the value of the Bitcoin jumped. This year, the stock has fallen about 50%, on par with Bitcoin’s slide.
FASB will consider how to implement the potential new measure at a future date.
Any proposal must also pass public vetting before becoming a final update to US accounting rules.
If the rule does past, MicroStrategy observers may be best served to move right past the company’s income statement to the change in market value from one quarter to the next.
That number will pretty much be their net income or loss.
–With assistance from Tom Contiliano.
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