Why MicroStrategy, now Strategy, is about to get a $12.75 billion boost to its balance sheet: Bernstein
2025-02-06
Category: None

MicroStrategy, which rebranded to simply Strategy yesterday, is about to get a $12.75 billion boost to its balance sheet, according to analysts at research and brokerage firm Bernstein.
Strategy reported a net loss of $670.8 million in the fourth quarter of 2024 on Wednesday, with operational expenses rising 693% year-over-year to $1.1 billion. That includes just over $1 billion worth of impairment losses related to the company’s bitcoin holdings, compared to $39.2 million during the same period in 2023.
Previously, digital asset values on a company's books had to be marked down when prices fell but could not be adjusted upward if prices rose unless sold. However, with Strategy adopting the Financial Accounting Standards Board’s new fair-value accounting rules from January 2025, this will lead to a one-time cumulative adjustment of $12.75 billion to the opening balance of its retained earnings, the Bernstein analysts led by Gautam Chhugani wrote in a note to clients on Thursday — enabling the firm to recognize unrealized gains on its bitcoin position for the first time.
“Beginning in Q1CY25 financials, the carrying value of bitcoin will align with its market value, allowing MSTR to report any appreciation in bitcoin’s price as a gain in its net income,” the analysts said.
However, uncertainty remains over the tax treatment of Strategy’s bitcoin holdings under the new FASB rules in combination with provisions of the 2022 Inflation Reduction Act — meaning it could require a special exemption from the IRS.
Strategy's stock closed down 3.3% on Wednesday and is currently up 1.4% in pre-market trading on Thursday, according to TradingView.
A bitcoin Strategy
MicroStrategy changed its corporate brand to just Strategy ahead of its earnings release on Wednesday. "The new logo includes a stylized “₿”, signifying the company’s bitcoin strategy, and its unique position as a bitcoin treasury company. The brand’s primary color is now orange, representing energy, intelligence and Bitcoin,” the firm said in a statement. “This finally symbolizes the complete shift from its software business to a bitcoin treasury company,” Chhugani wrote.
The company reported a year-to-date BTC Yield of 74.3%, a key performance indicator it uses to represent the percentage change in the ratio between its bitcoin holdings and assumed diluted shares outstanding. Strategy also announced other new KPIs, an annual “BTC Gain” and “BTC $ Gain,” with an annual “BTC $ Gain” target of $10 billion for 2025.
On Monday, Strategy’s latest 12-week bitcoin buying streak came to an end after confirming it did not sell any shares of class A common stock under its at-the-market equity offering program and did not purchase any bitcoin between Jan. 27 and Feb. 2.
The company's total bitcoin holdings stand at 471,107 BTC, worth around $46 billion. “MSTR trades today (~$97 billion EV, adjusted for diluted shares) at a ~110% premium to its bitcoin NAV, compared to historical average premium of ~60%. Equity market cap to bitcoin NAV stands at 1.9x NAV,” the Bernstein analysts noted. Some investors have aired reservations about the firm's premium to NAV valuation and its equity and debt-funded bitcoin acquisition program in general.
Strategy’s total holdings were bought at an average price of $64,511 per bitcoin, a total cost of around $30.4 billion, including fees and expenses, according to the company's co-founder and executive chairman, Michael Saylor. To put that in perspective, Strategy holds more than 2.2% of bitcoin’s total 21 million supply.
Strategy’s “21/21” plan, introduced in Q3 last year, targeted a capital raise of $21 billion in equity and $21 billion in debt from 2025 to 2027. Over the past three months, the company has already utilized around $20 billion of the plan, the analysts highlighted — $16.7 billion in equity, $3 billion in convertibles and $600 million in preferred stock.
Strategy aims for a long-term leverage ratio of 20% to 30%, the analysts explained. However, its current ratio is lower than this target at around 15% due to its outstanding $6.2 billion in convertible debt, with the first maturity not due until 2028. “This provides enough room to lever up,” they said, as the firm’s bitcoin experiment continues.
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