MicroStrategy sees first profit in nine quarters, thanks to tax benefits?
The largest Bitcoin holding company, MicroStrategy, has released its Q1 2023 financial report, marking its first profitable quarter in nine quarters after benefiting from tax incentives related to its significant cryptocurrency holdings. MicroStrategy reported a net income of $461 million in the first quarter, compared to -$130 million in the same period last year.
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Bitcoin Surges, MicroStrategy Benefits from Tax Breaks
In the most recent quarter, the price of Bitcoin surged by 72%, allowing MicroStrategy to reduce reserves related to early cryptocurrency impairments and thus gain a one-time tax benefit of $453.2 million. Excluding this tax benefit, MicroStrategy's operating profit for the quarter is essentially - $20.3 million, as indicated by the "loss from operations" on MicroStrategy's financial statements.
MicroStrategy Pays Off Silvergate Loan
In mid-February, MicroStrategy submitted a supplemental filing to the SEC regarding its A-share registration statement, planning to issue more A-shares, stating that the funds raised may be used not only to purchase Bitcoin but also to repay debts, including the term loan with Silvergate Bank.
In early March, Silvergate decided to wind down its business and liquidate the bank, giving MicroStrategy room to negotiate. They repaid all debts owed to Silvergate, totaling $161 million, although MicroStrategy initially borrowed $205 million!
MicroStrategy's smart move: paying off Silvergate loan at a discount, and doubling down on Bitcoin
MicroStrategy Continues to Increase Bitcoin Holdings
In addition to repaying the Silvergate loan, MicroStrategy issued new shares and increased its Bitcoin holdings at a low point. By the end of March 2023, MicroStrategy held a total of 140,000 Bitcoins at an average cost of $29,803.
MicroStrategy's strategic move: doubling down at a low point, MicroStrategy unlocks its position! Bitcoin investment gains $27.58 million, with a return rate of 0.66%
MicroStrategy: A Software Company Distracted by Bitcoin
While MicroStrategy posted its first profit in nine quarters, it was not from its core business but rather from Bitcoin tax benefits. Even analyst Adam Cochran is not optimistic, citing Rho Rider's analysis of MicroStrategy, stating that even excluding the asset impairment from Bitcoin, the operating profit remains negative. Moreover, with heavy borrowing, the company cannot afford interest expenses and may need to sell Bitcoin to cover them, suggesting that MicroStrategy is essentially bleeding cash and dumping shares.
Not looking good for $MSTR who now confirms they are over extended and cannot cover their own debt interest.
Have suggested that even sales of BTC may be on the table to service debt. https://t.co/onmWMiTL7G
— Adam Cochran (adamscochran.eth) (@adamscochran) May 1, 2023
What does MicroStrategy's core business actually do: a software company distracted by Bitcoin, what is MicroStrategy's strategy?