Summary Strategy's Q1-25 earnings reveal a $5.9 billion operating loss, largely due to unrealized Bitcoin losses, with the software business revenue down 3.6% YoY. Strategy's aggressive Bitcoin acquisition strategy has doubled BTC backing per share, but MSTR trades at twice the Bitcoin NAV, posing significant dilution risks. The 42/42 capital raise plan aims to double previous targets, but fixed income obligations and potential forced Bitcoin selling are key risks. Preferred shares - STRF - offer a compelling investment, providing a 10% yield without the dilution risk faced by common stockholders. On May 1st, Strategy ( MSTR )( STRK )( STRF ) released earnings for the quarter-ended March 2025. I've covered MSTR for Seeking Alpha multiple times; most recently in February when I didn't particularly care for the optics of selling 'merch' to shareholders. The corporate transformation of MicroStrategy to Strategy has seemingly brought about the end of the relevance of what was once a company that primarily operated a software business. This company is now leaning entirely into buying Bitcoin ( BTC-USD ) at just about any price. Even though the underlying software business is no longer a focal point of Strategy's internal and external KPIs, it is important to understand the performance of the business itself to be able to better predict what is likely to happen with equity in the company longer term. In this update, we'll look at those numbers, and I'll get into why I actually don't dislike the idea of getting exposure to Strategy through the preferred shares at this juncture even though I've been critical of Strategy co-founder and Executive Chairman Michael Saylor in the past. Q1-25 Earnings & BTC Holdings For the first quarter 2025, Strategy's software business produced $111 million in top line revenue, a 3.6% reduction year over year a $5.3 million miss according to analyst expectations . The eye-popping headline was perhaps the $5.9 billion operating loss in the quarter. But that figure is a silly number in my view because it's almost entirely due to an unrealized loss on the company's Bitcoin. In the table below, I'm keeping it a bit more simple and looking at just revenue, COGS, and opex without the BTC revaluation: $ in 000s Q1-25 Q1-24 YoY Revenue $111,066 $115,246 -3.63% COGS $33,971 $30,015 13.18% Opex (sans revaluation) $92,502 $97,300 -4.93% Adjusted Income from Ops -$15,407 -$12,069 27.66% Source: Strategy Opex (sans revaluation) includes SG&A, Marketing, and R&D expenses. This shouldn't be a surprise, the business continues to lose money from operations. In fact, that quarterly loss in Q1 grew by almost 28% year-over-year due to a decline in top line revenue coupled with a 13% increase in cost of revenue. Last year, Strategy lost $63.1 million from operating the software business. These numbers are obviously small compared to Strategy's enormous Bitcoin hoard, which currently stands at $553,555 BTC and a Bitcoin NAV of $53.7 billion. Strategy BTC Holdings (BitcoinTreasuries) Subsequent to the end March, Strategy has purchased another 25k BTC. Impressively, MSTR has grown the BTC-backing of each MSTR share by over 100% year over year. Yet, the equity valuation of the MSTR common shares is once again double the value of the Bitcoin held by the company. MSTR NAV Premium (StrategyTracker) As MSTR trades at a premium to Bitcoin NAV and with high implied volatility, Strategy can continue to issue new shares, convertible debt or preferred shares to buy more Bitcoin. In a normal market environment, this probably shouldn't be possible. But this is Bitcoin we're talking about and anything goes when enough people believe in an idea. While I wouldn't personally buy MSTR at twice the price of the BTC held by the company and view shareholder dilution through both the ATM and the convertibles as a significant risk, that doesn't necessarily mean there aren't interesting ways to capitalize on Strategy's Bitcoin flywheel. 42/42 Strategy is 65% of the way through its original 21/21 capital raising initiative. What's clear here is Strategy is raising more capital through equity dilution than through fixed income products: 21/21 Capital Raise Plan (Strategy) Last quarter the company raised $6.6 billion through ATM sales of the common stock. It raised an additional $2 billion through convertible debt and $1.4 billion through preferred shares. I find the latter to be very interesting. During the conference call, the company shared details about doubling the capital raise plan from $21 billion in equity and $21 billion in fixed income to $42 billion in both: 42/42 is the New 21/21 (Strategy) Now 32% complete, the 42/42 plan would see an additional $21 billion raised through common stock equity and $35.6 billion raised through fixed income products through 2027. To get a sense of how unrealistic I think $42 billion in fixed income likely is, we have to look at the current obligations from the existing products: Preferred Offerings STRK STRF Raised $818m $850m Dividend 8.00% 10% Annual Payout $65m $85m Source: Strategy This table doesn't even include interest from the converts which adds another $35 million to Strategy's annual fixed income obligations. That total currently stands at $185 million. Thus, if Strategy was able to raise an additional $35.6 billion in fixed income at the current obligation structure, the company would owe over $1 billion in dividend payments annually. I want MSTR shareholders/fans to actually think about this for a moment; if cash flow from the underlying business can't meaningfully fund the dividend required for STRK and STRF shareholders - and we know that it already can't - then that capital has to either come from selling Bitcoin or from raising fresh investment capital to pay previous investors. The latter sounds a lot like a Ponzi scheme - which, I want to be clear, is not an accusation that I'm making. I actually think Strategy has been fairly transparent about what they're doing and how they're doing it. But with the company now intending to double the capital raise from the previous guidance, it stands to reason that Strategy will eventually have to begin selling Bitcoin to make payments on STRK and STRF - that, or issue more common stock to meet those dividend obligations. And we already know that Strategy had no issue ripping through $20.9 million of its MSTR ATM. The capital from fixed income has been much slower. Which is unfortunate for MSTR shareholders because the fixed income method is less dilutive and more advantageous for "BTC Gain" and "BTC Torque" shown in the illustration below: KPI by Security (Strategy) My hunch is we will see the new $21 billion common stock ATM start to get tapped again before the original $14.6 billion fixed income capital raise from the 21/21 plan is exhausted. Risks This is a key risk that I've raised before in multiple different articles, but it bears mentioning once again; Strategy has been a very large player in public company acquisitions of BTC: Top Public Holders 12/31/2023 5/1/2025 Change % Strategy 189,150 553,555 364,405 192.7% MARA Holdings ( MARA ) 15,174 47,600* 32,426 213.7% Riot Platforms ( RIOT ) 7,362 19,223* 11,861 161.1% Tesla ( TSLA ) 9,720 11,509 1,789 18.4% CleanSpark ( CLSK ) 3,002 11,869* 8,867 295.4% Top Public Holders 224,408 643,756 419,348 186.9% Source: Bitcoin Treasuries, Company filings *as of March 2025 Going back to the beginning of 2024, Strategy has added over 364k BTC to its corporate holdings. This is 85% of the BTC added by the top 5 public company Bitcoin holders, and 74% of the increase in total public company holdings over that time frame. The point is, though we are indeed seeing more companies buying BTC, Strategy is still by far the biggest driver of BTC in the public equity markets. The risk here is that there are scenarios where Strategy could turn into a forced seller of the asset. Today, that forced selling is highly unlikely because the company's debt/dividend to Bitcoin ratio is just 18%. It would take an enormous collapse in the price of BTC for Strategy to turn into a forced seller. However, the more debt the company raises with either converts or preferred shares, the more at risk the Strategy becomes to the forced selling scenario if the market turns against the company. Closing Summary MSTR Premium Rationale (Strategy) I still wouldn't touch MSTR personally. I think the premium to NAV is silly and common stock shareholders are going to continue to be diluted through yet another MSTR ATM. Could the price of MSTR go higher? Sure. But I don't think any of Saylor's reasons for the premium are good enough to justify it. I think his argument about a compliance advantage over ETFs fails when one can buy MARA instead at a far smaller premium to BTC holdings. Most of the rest of it is related to trading, credit, and arbitrage over any real value creation. All this said, the preferred shares are intriguing because they can work in both bull and bear environments for Bitcoin. Given all this, I won't pay a premium for BTC through MSTR when I can just buy an ETF instead. But I have no problem letting Saylor pay me 10% while he dilutes his common stockholders. I'm long STRF.
