01—Abstract
Summary
Summary of the 10-K filed February 16, 2022. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated's 10-K for fiscal 2021 describes two interdependent corporate strategies: acquiring and holding bitcoin as its primary treasury reserve asset, and growing its enterprise analytics software business.
As of February 14, 2022, the company held approximately 125,051 bitcoins acquired at an aggregate purchase price of $3.777 billiona (average approximately $30,200 per bitcoin). Bitcoin was carried at $2.850 billion at December 31, 2021, reflecting $901.3 million in cumulative impairment losses. Digital asset impairment losses of $830.6 million in 2021 drove a net loss of $535.5 million, compared with a net loss of $7.5 million in 2020.
Total revenues rose to $510.8 millionb from $480.7 million, with product licenses and subscription services revenues up 20.9% to $144.9 million. The company funded bitcoin purchases through $1.050 billion of 2027 Convertible Notes, $500.0 million of 6.125% 2028 Secured Notes, $650.0 million of 2025 Convertible Notes issued in 2020, and about $1.0 billion of Class A common stock sold under an Open Market Sale Agreement. Total long-term debt carrying value was $2.155 billion at year end.
The filing states the company has not sold any bitcoin and does not plan regular trading, though it may sell bitcoin for treasury management. Michael J. Saylor controls the company through Class B shares carrying 67.7%c of total voting power, and the filing lists bitcoin price volatility, custody and security risks, and regulatory uncertainty as principal risks.
02—Key points
Key Highlights
- Bitcoin holdings of approximately 125,051 as of February 14, 2022, acquired at an aggregate purchase price of $3.777 billion, with the Coinbase market price at $42,202.99 on that date.
- Net loss of $535.5 million for 2021, versus a net loss of $7.5 million in 2020, driven primarily by $830.6 million in digital asset impairment losses.
- Total revenues of $510.8 million in 2021, up from $480.7 million in 2020; product licenses and subscription services revenues rose 20.9% to $144.9 million.
- Long-term debt of $2.155 billion at December 31, 2021, consisting of 2025 Convertible Notes, 2027 Convertible Notes and $500.0 million of 2028 Secured Notes, with the secured notes collateralized by substantially all assets including post-June 2021 bitcoin.
- Approximately $1.0 billion of Class A common stock sold under the Open Market Sale Agreement with Jefferies in 2021, providing net proceeds of about $990.5 million used to buy bitcoin.
- Class B shareholders, principally Michael J. Saylor, hold 67.7% of total voting power, giving him control over director elections and major corporate transactions.
- The filing states that the company has not sold any bitcoin, has no hedges or derivative positions on its holdings, and that its bitcoin is less liquid than its cash and cash equivalents.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 16, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $510.76M$480.74M | +6.2% |
| Cost of Revenue | $91.91M$91.06M | +0.9% |
| Gross Profit | $418.85M$389.68M | +7.5% |
| R&D Expenses | $117.12M$103.56M | +13.1% |
| Operating Expenses | $1.20B$403.31M | +198.4% |
| Operating Income | -$784.53M-$13.63M | −5658.0% |
| Net Income | -$535.48M-$7.52M | −7017.0% |
| EPS (Basic) | $-53.44$-0.78 | −6751.3% |
| EPS (Diluted) | $-53.44$-0.78 | −6751.3% |
| Shares Outstanding (Basic) | 10.02M9.68M | +3.5% |
| Shares Outstanding (Diluted) | 10.02M9.68M | +3.5% |
05—Questions
Frequently Asked Questions
Why did MicroStrategy report such a large net loss in 2021?
The company recorded digital asset impairment losses of $830.6 million in 2021, which represented 69.0% of its operating expenses. Under its accounting policy, bitcoin is written down when its market price falls below carrying value, and recoveries are not recognized until the bitcoin is sold, so the impairments flowed directly into the $535.5 million net loss.
How much bitcoin does the company hold and what is it worth on the balance sheet?
As of December 31, 2021, the company held approximately 124,391 bitcoins carried at $2.850 billion, net of $901.3 million in cumulative impairments. As of February 14, 2022, it held approximately 125,051 bitcoins acquired at an aggregate cost of $3.777 billion, and the filing notes the market price that day was $42,202.99.
How is the bitcoin strategy financed?
The filing identifies the 2025 Convertible Notes ($650.0 million, issued December 2020), the 2027 Convertible Notes ($1.050 billion, issued February 2021), the 2028 Secured Notes ($500.0 million, issued June 2021), and the Open Market Sale Agreement under which 1,413,767 Class A shares were sold for about $1.0 billion in 2021. It states the company may issue further debt or equity to buy additional bitcoin.
What risks does the 2028 Secured Notes structure create for investors?
The notes are secured by substantially all company assets, including bitcoin acquired on or after June 14, 2021, and may spring to an earlier maturity of September 15, 2025 or November 16, 2026 unless specified liquidity conditions are met. The indenture also restricts additional debt, liens, dividends and asset sales, and a default could allow holders to enforce their security interests.
Can outside shareholders influence the company's direction?
Limited ability is indicated by the filing. Class B common stock carries ten votes per share, and Michael J. Saylor beneficially owned 1,961,668 Class B shares, or 67.7% of total voting power as of February 1, 2022. The company is a controlled company under Nasdaq rules, and Mr. Saylor could transfer voting control or block a change of control without board or other stockholder approval.
06—Continue