MicroStrategy Reports $918M Impairment Charge on Bitcoin Holdings in Q2

MicroStrategy (MSTR) took a non-cash digital asset impairment charge of $917.8 million on its bitcoin (BTC) holdings in the second quarter, up from $170.1 million in the first quarter and $424.8 million in the second quarter of 2021, according to its latest earnings report.

The business software firm also announced that it had named Phuong Le, the company's president, to replace Michael Saylor as its CEO. Saylor, who had served as MicroStrategy's CEO and chairman of the board since he founded the company in 1989, and took it public in 1998, will continue to serve as chairman of the board and will also take on the new role of executive chairman.

While Tesla (TSLA), another prominent company with bitcoin on its balance sheet, sold roughly 75% of its holdings in the second quarter to raise cash, MicroStrategy has continued to hold on and even add to its position, despite bitcoin’s sharp decline over the last few months. During the period from May 3 to June 28, MicroStrategy bought an additional 480 bitcoins for about $10 million – an average price of $20,817 per coin.

The business software firm secured a $205 million term loan in March from Silvergate to potentially purchase additional bitcoin, but Saylor, a bitcoin maximalist, has noted that the company has thousands of bitcoin it can pledge as additional collateral if needed.

MicroStrategy's CFO Andrew Kang said during the earnings conference call that the company has about 85,000 unpledged bitcoin available, giving the company more than enough collateral to meet ongoing requirements of its Silvergate term loan through "any foreseeable price volatility."

The company's digital asset impairment reflects the decline in the price of bitcoin versus the price at which the bitcoin was acquired. Under standard accounting rules, the value of digital assets such as cryptocurrencies must be recorded at their cost and then only adjusted if their value is impaired, or goes down. But if the price rises, that does not get reported unless an asset is sold.

The company's 129,699 bitcoins held at the end of June 30, 2022, were acquired for approximately $4 billion, reflecting an average cost per bitcoin of approximately $30,664, the company reported. At bitcoin’s current price of about $23,000, the value of those holdings is approximately $3 billion. MicroStrategy's entire market capitalization is roughly $3.2 billion.

MicroStrategy shares were flat at $278.01 in after-hours trading Tuesday, after initially falling 2% to 3%. Shares have tumbled around 46% year to date, just shy of bitcoin’s roughly 50% drop over the same time period.

On the company's earnings call with analysts, Saylor reiterated the advantages of the change in management structure.

"The three of us make a great team," Saylor said, speaking of himself, Le and CFO Andrew Kang. "We work together well and possess mutually complementary skills and experience...This will be a benefit to our shareholders, customers, employees, partners, as well as to the broader community as we continue to lead the way in business intelligence and Bitcoin corporate adoption."

Read more: Michael Saylor Says MicroStrategy Margin Call Talk Is ‘Much Ado About Nothing’

UPDATE (August 2, 21:52 UTC): Updated with Saylor comments on earnings call.

UPDATE (August 2, 22:40 UTC): Updated with CFO Andrew Kang's comments from the earnings call.