Strategy (MSTR) swung to an $8.2bn quarterly loss after Bitcoin's decline triggered an $8.3bn write-down, as lower cryptocurrency prices put fresh pressure on the financing model the company has built since adopting Bitcoin as its primary treasury asset in 2020.
Strategy reported an operating loss of $8.33bn for the second quarter, reversing a $14.03bn operating profit a year earlier. The result was driven almost entirely by unrealized losses on its Bitcoin (BTC) holdings.
The company's second-quarter revenue stood at $122.4mn, broadly in line with analysts' expectations. Strategy posted a GAAP net loss of $24.45 per diluted share after recording an $8.32bn unrealized loss on its Bitcoin holdings. Losses attributable to common shareholders widened to $8.62bn after Strategy recorded $400.7mn in preferred-stock dividends, up from $49.1mn a year earlier.
The results underscore the pressure that lower Bitcoin prices placed on Strategy's balance sheet and financing model during the quarter.
Amid the cryptocurrency's decline and rising preferred-stock dividend obligations, Strategy sold Bitcoin for the first time since 2022. It disposed of 1,395 BTC for $83.2mn during the quarter, using the proceeds to fund a portion of those payments. Still, the company expanded its total holdings over the period, buying 85,296 BTC for $6.42bn during the quarter. It held 846,000 BTC at the end of June, with a fair value of $49.67bn against an original cost basis of $63.94bn.
Strategy shares rose nearly 5% in after-hours trading following the report.
STRC model tested
STRC, Strategy's high-dividend preferred stock, remained a key source of funding during the quarter. The company raised $5.47bn through sales of the shares and used most of the proceeds to buy more Bitcoin. But as BTC prices fell and STRC traded below its $100 stated value, the structure became more expensive to maintain and less effective as a source of new funding.
That pressure prompted Strategy to begin repurchasing STRC in late July. It spent about $25mn to retire 288,930 shares carrying roughly $3.5mn in annual dividends, reducing future payout obligations while buying the securities at a discount to par. The move shows how the model is adapting as Bitcoin has fallen 26% year to date.
The company also sold common stock to expand the cash reserve used to cover preferred dividends and said future STRC repurchases could be funded through further common-stock issuance or Bitcoin sales.
"At prices below $100 per share, STRC repurchases represent an attractive allocation of capital because they can reduce future preferred dividend requirements at a discount. We intend to scale our purchases according to both price and liquidity," said CEO Phong Le in a statement on 27 Jul.
Cash buffer expands
Strategy also used the quarter to reduce debt and increase the cash available to meet its obligations. In May, it repurchased $1.5bn of convertible notes due in 2029 for about $1.38bn, an 8% discount to their face value, cutting its outstanding convertible debt by 18% to $6.71bn.
Its dollar reserve stood at $2.4bn at the end of June and has since risen to $3.75bn, enough to cover an estimated 2.1 years of preferred dividends and interest payments. Strategy said it has made 18 consecutive months of dividend payments without missing one, while cumulative distributions across its preferred shares have reached $1.06bn.
Strategy's original software business continued to grow but remained small relative to movements in its Bitcoin portfolio. Revenue rose 6.9% year over year to $122.4mn, while gross profit increased to $81.6mn. Its gross margin narrowed to 66.6% from 68.8% a year earlier.
