Bitcoin (BTC-USD) isn’t a business and doesn’t have earnings reports, but its price movements can have profound effects on cryptocurrency-associated corporations. A working example is MicroStrategy (NASDAQ:MSTR), which is about as crypto-immersive as a business can get.

A fast search-engine query might suggest that MicroStrategy is an enterprise software developer. That’s actually a part of its business model, but MicroStrategy has emerged in recent times as an aggressive bitcoin hoarder.

Hoarding vast amounts of bitcoin may look like an odd business to be in. Nonetheless, it is sensible during a time when some traders are searching for leveraged bets on bitcoin’s bull run. MicroStrategy stock does are inclined to rally when bitcoin does, but as investors discovered on Tuesday, not each day is a shiny one.

How much bitcoin does MicroStrategy have?

For many reporting corporations, the quarterly headline news involves revenue and income. It’s different for MicroStrategy though, because it literally printed the scale of its bitcoin hoard within the title of its quarterly press release.

Here’s what you want to find out about MicroStrategy’s first-quarter results. The corporate has acquired 25,250 bitcoins for the reason that end of the fourth quarter and held an astonishing 214,400 bitcoins as of April 26. In keeping with MicroStrategy President and CEO Phong Le, this represents the corporate’s 14th consecutive quarter of adding bitcoin to its balance sheet.

Don’t get the fallacious idea. While MicroStrategy seeks to amass an enormous quantity of bitcoins, the corporate also understands the importance of maintaining a robust money position. Thus, MicroStrategy rapidly grew its money and money equivalents from $46.8 million as of December 31 to $81.3 million as of March 31.

Granted, the corporate bolstered its money and money equivalents through a recent capital raise, issuing $800 million price of 0.625% convertible senior notes due 2030 in March. That’s not a high rate of interest, but investors should still keep at the back of their mind that MicroStrategy could have to repay all of that borrowed capital.

Investors must also note that MicroStrategy’s Subscription Services Revenues grew 22% 12 months over 12 months to $23 million. Hence, the corporate actually does generate some sales from its enterprise software business. Moreover, MicroStrategy offers feature-rich software for artificial intelligence (AI) and enterprise-grade analytics.

Nonetheless, at the tip of the day, traders typically consider MicroStrategy as a magnified Bitcoin proxy, and so they consider MicroStrategy co-founder and Chairman Michael Saylor as a crypto cheerleader.

There weren’t many of us cheering for MicroStrategy on Tuesday though, as its stock lost 16% of its value as of midday on April 30. Bitcoin was down by about 1% to around $63,000 that day, but clearly, there was more to the story than that.

A steep earnings loss and an accounting anomaly

Let’s attempt to unravel why traders dumped MicroStrategy stock. The corporate’s first-quarter revenue declined 5% 12 months over 12 months to $115.2 million, which fell wanting Wall Street’s call for $121.7 million in revenue.

MicroStrategy is volatile, and the quarterly revenue miss was undoubtedly disappointing, but those aspects don’t fully account for the deep share-price decline. Thus, let’s turn to MicroStrategy’s bottom-line results.

At first blush, these results might shock and alarm you. In Q1 2024, MicroStrategy recorded an earnings lack of $3.09 per share. This stands in stark contrast to the year-earlier quarter, through which it reported income of $31.79 per share. The corporate was quick to indicate a primary reason for the steep earnings loss, nonetheless.

“Digital asset impairment losses of $191.6 million and $18.9 million for the primary quarter of 2024 and 2023, respectively, were reflected in these amounts,” MicroStrategy declared in its quarterly press release.

Let’s do the mathematics. MicroStrategy lost $53.1 million in Q1 2024, but this factored in an impairment charge of $191.6 million. If it weren’t for that impairment charge, the corporate would theoretically have recorded quarterly income of $138.5 million ($191.6 million – $53.1 million).

Thus, if MicroStrategy’s first-quarter impairment charge was a one-time event, possibly the market’s highly negative response was overdone and investors must forgive MicroStrategy. As Barron’s explained, MicroStrategy selected to make use of older accounting rules, which explains the quarterly impairment loss.

CoinDesk added, “By the old standard, MicroStrategy at quarter’s end valued its bitcoin holdings at a price of $23,680 each, or $5.1 billion, quite than March’s closing price of $71,028, or $15.2 billion.”

It appears like this was more of an accounting anomaly than a everlasting, non-fixable problem with MicroStrategy. In the ultimate evaluation, MicroStrategy stock still has substantial upside potential, but after all, it’s still only appropriate for volatility-tolerant bitcoin bulls.