Strategy's Bitcoin Per Share Falls 3.7%: Rapid Earnings Reaction

Strategy (MSTR -2.44%) reported a $19.5 billion profit for the third quarter, equating to $44.75 per diluted share, with the bulk of the earnings derived from the increasing value of the bitcoin (BTC -2.72%) holdings. However, the shares experienced no change in early after-hours trading, indicating that the surge in bitcoin's price was not accompanied by business improvement.

The key metric to watch is the shrinking value of bitcoin per share, as Strategy marks its holdings at the market price every quarter. This method of accounting means that the record profit largely reflects the price of the bitcoin, while the company's software business has minimal impact on the bottom line. Over the year, Strategy has expanded its bitcoin holdings by 26%, yet the number of shares has increased at a faster rate, causing the per-share value to decline.

In addition to the growing bitcoin value, Strategy has been actively managing its financial obligations. The company has allocated approximately $2 billion this year to repurchase its STRC preferred shares, which were trading below face value at the time. Furthermore, Strategy has sold some of its bitcoin to fund these buybacks and to cover the preferred dividends, thus demonstrating that a business fundamentally centered around accumulating bitcoin is now selling portions of its holdings to maintain creditworthiness.

Investors should monitor the BTC Yield to see if it turns positive in the upcoming quarter, as well as the quantity of bitcoin that Strategy is selling to meet dividend requirements and STRC buybacks. For those seeking further investment insights, The Motley Fool offers premium services that provide stock recommendations and portfolio guidance.