01—Abstract
Summary
Summary of the 10-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
MicroStrategy Incorporated's Form 10-K for fiscal year 2023 presents the company as a self-described "Bitcoin development company" that continues to run an enterprise analytics software business, which it describes as its predominant operational focus and the source of cash flows that fund its bitcoin strategy.
Total revenues were $496.3 milliona in 2023, down slightly from $499.3 million in 2022, with product licenses declining 12.9% and subscription services rising 33.6%. The company recorded net income of $429.1 million, driven largely by a $553.6 million tax benefit from releasing the valuation allowance on its bitcoin-related deferred tax asset and a $44.7 million gain on debt extinguishment, while loss from operations was $115.0 million including $115.9 million of digital asset impairment losses. The company held approximately 189,150 bitcoins at December 31, 2023, carried at $3.626 billion after $2.269 billion of cumulative impairments, against a market value of $8.04 billion at the year-end Coinbase price of $42,531.41.
As of February 14, 2024, it held about 190,000 bitcoins acquired at an aggregate cost of $5.933 billionb. Funding came mainly from $2.02 billion of net proceeds from at-the-market sales of class A common stock. Total indebtedness was $2.210 billion at year-end, including $1.7 billion of convertible notes and $500 million of 6.125% senior secured notes due 2028 secured by a portion of its bitcoin.
The filing highlights concentration and volatility risk: bitcoin holdings are the majority of assets, and the company notes that the FASB's ASU 2023-08 will require fair value accounting from January 1, 2025, which it expects to have a material impact on results. Michael J. Saylor controls roughly 56.6%c of voting power through class B shares.
02—Key points
Key Highlights
- Revenue of $496.3 million in 2023 versus $499.3 million in 2022; product licenses fell 12.9% to $75.4 million while subscription services rose 33.6% to $81.2 million.
- Net income of $429.1 million in 2023, versus a net loss of $1.47 billion in 2022, primarily reflecting a $553.6 million income tax benefit tied to releasing the bitcoin-related valuation allowance.
- Loss from operations of $115.0 million, including $115.9 million of digital asset impairment losses, compared with a $1.28 billion operating loss in 2022.
- Held approximately 189,150 bitcoins at year-end 2023 with a carrying value of $3.626 billion and a market value of $8.04 billion at the $42,531.41 year-end price; about 190,000 bitcoins held as of February 14, 2024.
- Total indebtedness of $2.210 billion at December 31, 2023, comprising 2025 and 2027 convertible notes, $500 million of 6.125% senior secured notes due 2028, and other debt.
- Raised $2.02 billion of net proceeds through at-the-market class A common stock sales in 2023 to fund $1.90 billion of bitcoin purchases.
- Michael J. Saylor controls about 56.6% of total voting power through class B common stock, and ASU 2023-08 adoption from January 2025 is expected to materially affect future earnings volatility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Strategy kept $0.86.
- Revenue$496.3M100.0%
- Cost of revenue−$109.9M22.2%
- Gross profit$386.3M77.8%
- Operating costs−$501.4M101.0%
- Operating income−$115.0M23.2%
- Interest, other & tax$544.2M109.7%
- Net income$429.1M86.5%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 15, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $496.26M$499.26M | −0.6% |
| Cost of Revenue | $109.94M$102.99M | +6.8% |
| Gross Profit | $386.32M$396.27M | −2.5% |
| R&D Expenses | $120.53M$127.43M | −5.4% |
| Operating Expenses | $501.36M$1.67B | −70.0% |
| Operating Income | -$115.05M-$1.28B | +91.0% |
| Net Income | $429.12M-$1.47B | +129.2% |
| EPS (Basic) | $3.14$-12.98 | +124.2% |
| EPS (Diluted) | $2.64$-12.98 | +120.3% |
| Shares Outstanding (Basic) | 136.71M113.21M | +20.8% |
| Shares Outstanding (Diluted) | 165.66M113.21M | +46.3% |
05—Questions
Frequently Asked Questions
Why did the company report net income in 2023 despite an operating loss?
The company reported net income of $429.1 million in 2023 largely because of a $553.6 million income tax benefit, mainly from releasing the valuation allowance on its deferred tax asset tied to bitcoin impairment losses, and a $44.7 million gain on debt extinguishment from repaying the 2025 Secured Term Loan. Its loss from operations was $115.0 million.
How much bitcoin does the company hold and what is it worth?
At December 31, 2023 the company held approximately 189,150 bitcoins with a carrying value of $3.626 billion, after $2.269 billion of cumulative impairment losses. At the December 31, 2023 Coinbase price of $42,531.41, the market value was $8.04 billion. As of February 14, 2024, it held about 190,000 bitcoins with an aggregate cost of $5.933 billion, and the price that day was $51,744.68.
What risks does the bitcoin strategy create for investors?
The filing states that bitcoin is highly volatile and that holdings are concentrated, so declines in bitcoin prices would materially affect financial results and the stock price. Impairment charges are recorded when the price falls below carrying value, while gains are recognized only on sale. The company also notes custody and counterparty risks, possible regulatory actions, and that bitcoin holdings are less liquid than cash.
How is the company financing its bitcoin purchases and what debt does it carry?
In 2023 the company sold $2.02 billion of class A common stock under at-the-market programs, and most of its bitcoin purchases were funded this way. Debt at year-end totaled $2.210 billion, including $650 million of 0.750% convertible notes due 2025, $1.05 billion of 0% convertible notes due 2027, and $500 million of 6.125% senior secured notes due 2028, which are secured by a portion of its bitcoin holdings.
What accounting change could affect future results?
The FASB issued ASU 2023-08 in December 2023, which requires bitcoin to be measured at fair value with gains and losses recognized in net income each period, effective for interim and annual periods beginning January 1, 2025. The company expects this to have a material impact on its financial results and balance sheet, and estimates that adoption in 2024 would increase its beginning retained earnings by about $3.1 billion.
06—Continue