MicroStrategy Incorporated Q1 FY2025 earnings call

Phong Le mentioned Strategy World 2025 in Orlando, May 5 - 8. Strategy is the largest corporate holder of Bitcoin, holding 553,555 bitcoins with a total market value of $52 billion as of April 28. Acquired additional 106,085 bitcoins in the first 4 months of 2025. Trump administration's actions on Bitcoin were noted. Raised $6.6 billion net proceeds through ATM equity offering, $2 billion through convertible note offering, and $1.4 billion through preferred stock in Q1. Added to balance sheet every quarter since August 2020. Andrew Kang discussed software results and Bitcoin fair value accounting. Michael Saylor talked about BTC models, equity analytics, BTC credit models, and strategies to maximize shareholder value, including working the yield curve, balancing short-term and long-term, and educating the capital markets.

Software revenues in Q1 were approximately $111 million, down 3.6% year-over-year. Cloud subscription services revenues increased 62% year-over-year and now make up approximately 33% of total revenues. Cost of revenues were $34 million, up 13% compared to Q1 of last year. Bitcoin holdings: Began the year with a value just under $42 billion. Recognized $17.9 billion to beginning balance of retained earnings on Jan 1. In Q1, price of Bitcoin declined, resulting in a $5.9 billion unrealized fair value loss. Purchased additional 80,715 bitcoin in Q1 at an average price of approximately $94,900, representing $7.7 billion of new purchases. Strike, an 8% convertible preferred, has an effective yield of roughly 9% and strong institutional demand. Strife, a 10% fixed coupon perpetual preferred, has shown strong liquidity and investor demand.

Raised BTC yield target from 15% to 25% and BTC dollar gain target from $10 billion to $15 billion. Filed for a new $21 billion ATM program under the 42-42 capital plan. Intend to focus on fixed income side of the plan through instruments like Strike, Strife, convertible notes, and continue using equity ATM when favorable.

Actual results may differ materially from forward-looking statements due to various factors including risk factors discussed in recent 10-Q and 8-K filings. The credit markets are not yet embracing BTC as collateral, leading to wide credit spreads and inefficient pricing of credit instruments. Traditional credit rating practices may not account for BTC as collateral, impacting the valuation and perception of MSTR's fixed income securities.

Q: Now that you have adopted the fair value accounting, how do you feel about the big swings in earnings as a result of the bitcoin price volatility?

A: Sure. Thanks, Shirish. I guess, first off, the fair value accounting, even with the swings is far more transparent for our investors and more accurately reflects the true value of our bitcoin holdings versus the previous accounting rules. So certainly a win for us and other companies adopting bitcoin. The old accounting was, in many ways, a barrier I feel like -- but with that hurdle gone, we should continue to see a steady stream of new corporate adopters of bitcoin as a treasury asset. So the transparency, I think, is vitally important. So how do we feel about the swings? We, of course, like the positive swings more than the negative swings. But the reality is that bitcoin is volatile. So I think overall, I think we're unfazed by the downswings and believe over time, there will be more upswings. As I noted earlier, my 95,000 bitcoin price example would reflect a $6.7 billion gain. Right now, bitcoin is trading closer to 96.5. So today, we're the end of the quarter and that were the price for -- if that were the price at the end of the quarter, our unrealized gain would be closer to something like $7.6 billion in gain in a single quarter. So I think in the long term, we all believe bitcoin price is going to go up. And over that same long term, our reported gains will reflect that same trend in our overall earnings.

Q: What are your thoughts on the recent MSTR playbook adoptions from other companies? And how does the company plan to sustain its leading role?

A: I think it's a very virtuous cycle, and it's a mutually beneficial competition. The more companies that adopt the bitcoin standard, the more legitimizing it is. As more companies adopt the bitcoin standard, they're out there educating equity investors, and that brings more equity capital to the market. As they start to issue credit instruments, they will educate fixed income investors and credit investors that brings new capital to the market. There's only 450 Bitcoin a day. And so as we're all buying that bitcoin, the price of bitcoin is stabilized, supported and then driven up. And 99.9% of the capital in the world is invested in the traditional fiat physical financial economy. We're just at 1% or 0.1%. And if it grows from 0.1% to 1%, then the advantages of accelerating institutional adoption are profound, and they offset any possible competition for capital. I also think each capital market needs its own set of BTC companies. In France, you need a local French company. You need a local company in Brazil. You need a local company in Japan. You need -- the U.S. market can absorb dozens and dozens of companies because there are so many ways to differentiate. And every company is going to have its own approach. And of course, a lot of investors, they say one incident or one data point is just a random point. And two -- two is a line maybe, but 3 is a trend, right? And so when you get to the point when there's 3, 4, 5, 6 companies, a lot of investors will be more comfortable investing in the space because they're going to want to limit their exposure to anyone to a certain risk responsibility in their portfolio, but they're going to look for the next one, the next one. So I think the more companies that join, the better it is for bitcoin, the better it is for the companies in the space. And they're really going to accelerate the transition to the bitcoin standard such that the companies that don't join will find themselves pressured to join over time.

Q: Can you please update us on the pace of capital raises under the 42 plan? -- and how you're thinking about striking the right balance between equity capital and the fixed income capital going forward? And how do you think about the impact of dilution from another $21 billion equity?

A: Well, I'll start with -- I think that's the big question that we spent the last 2 hours addressing, right? And we have conviction in our capital raises and adding to our capital plan, and we talked about that. But you have to start with why did we lay out a BTC financial framework because the existing fiat financial framework doesn't work for BTC, right? So dilution, our BTC KPIs we look at things on a BTC yield, BTC per share, BTC gain basis. And I think you saw in Mike's presentation, every single capital raise we've done via our ATM, if you look at our strategy.com website, has been accretive on a BTC yield and a BTC per share and a BTC gain basis. And so if we issue ATM or equity at greater than 1x NAV, all other things being equal, that's accretive and it's not dilutive to shareholders. That said, if you look at our fixed income instruments, those are even more accretive when you look at BTC yield, all else being equal. But we need that fixed income market to become more mature and more efficient. As NAV rises, the yield curve starts to flatten and issuing equity starts to look more and more like issuing fixed income. And fixed income instruments do require more...