Today, we delve into Strategy Corporation's (formerly MicroStrategy) Q2 2025 financial results, which marked the company's first net positive quarter since adopting fair value Bitcoin accounting standards, generating one of the largest quarterly profits in the company's history. Key Takeaways Strategy's Bitcoin Treasury strategy delivered $10 billion in net income (compared to a loss of $102.6 million in Q2 2024), driven entirely by $14 billion in unrealized Bitcoin gains under the new accounting standard. The software business remained stable but secondary, with $114.5 million in revenue (up 2.7% year-over-year) and narrowing margins, contributing approximately $32 million in underlying operating income. Aggressive capital raising continued, with $6.8 billion raised through equity and preferred stock offerings in the second quarter, expanding its Bitcoin holdings to 597,325 BTC, representing 3% of the circulating supply and valued at approximately $64.4 billion. Following the release of the Q1 earnings report, Strategy's stock price fell 8%, from $401 to $367; the stock has since recovered to over $370. Strategy shares trade at a 60% premium to Bitcoin's net asset value, meaning investors pay $1.60 for every $1 in Bitcoin they hold. Key thesis: Strategy's Bitcoin treasury strategy is effective as long as Bitcoin prices continue to rise and capital markets remain open, but it introduces significant return volatility and dilution risk, rendering traditional software metrics irrelevant. However, its early entry into money management provided Strategy with ample cushion to weather a Bitcoin price crash. Financial Performance: Bitcoin a Key Driver Strategy Analytics reported GAAP net income of $10.02 billion for the second quarter of 2025, a sharp contrast to a net loss of $102.6 million in the same period last year. Diluted earnings per share reached $32.60, compared to a loss of $0.57 in the second quarter of 2024. The 9,870% year-over-year increase in net income was almost entirely driven by the $14 billion in unrealized Bitcoin windfalls recognized following the adoption of fair value accounting standards in January 2025. This marks a departure from the old accounting system, which required companies to value their BTC holdings at cost less impairment, where price increases were not recorded and any price declines had to be recorded as an impairment charge. The scale of this accounting impact is even more pronounced when compared to Strategy's operating income. Strategy's total revenue for the second quarter was just $114.5 million, meaning the company reported a net profit margin of over 8,700%, an anomaly driven entirely by the cryptocurrency's appreciation. Excluding the Bitcoin revaluation, underlying operating income was approximately $32 million, with a healthy profit margin of approximately 28% on software revenue, but this was negligible relative to the unexpected cryptocurrency gains. GAAP operating income reached $14.03 billion, a significant improvement from a $200 million operating loss in the same period last year, which included a significant Bitcoin impairment charge under the old accounting system. Quarterly volatility was extremely high. In the first quarter of 2025, GAAP net losses were $4.22 billion as Bitcoin fell to approximately $82,400 in March. With Bitcoin recovering to $107,800 in June, profits of $10 billion were realized in the second quarter, marking a sequential turnaround from losses to profits exceeding $14 billion. Management acknowledged that fair value accounting makes earnings "extremely sensitive" to Bitcoin's market price. Strategy's profitability is currently primarily driven by cryptocurrency market fluctuations, rather than software sales. Adjusted net income (excluding stock-based compensation and minor items) was approximately $9.95 billion, compared to negative $136 million in the prior year, roughly in line with GAAP, as Bitcoin-related adjustments far outweighed traditional add-back adjustments. Treasury Financing: As of June 30, 2025, Strategy held 597,325 Bitcoins, a more than 2.5-fold increase from 226,331 Bitcoins a year prior. With additional purchases in the third quarter, holdings now stand at 628,946 BTC. With a total cost base of $46.094 billion (an average of $73,290 per BTC), and a market value of approximately $74.805 billion, unrealized gains currently stand at approximately $29 billion—more than double the amount reported in the second quarter. In the second quarter, Strategy acquired 69,140 BTC for approximately $6.8 billion, equal to the total funds raised by the firm during the same period. The average purchase price in the second quarter was approximately $98,000 per BTC, indicating steady accumulation as prices climbed from the April lows. No Bitcoin sales occurred, and no gains were realized, in line with Chairman Michael Saylor's "HODL" strategy. The financing structure has evolved into a complex capital markets operation: Common Stock ATM Program: $5.2 billion was raised in the second quarter through the issuance of approximately 14.23 million shares, with an additional $1.1 billion raised in July. The program currently has approximately $17 billion in capacity. Preferred Stock Series: The strategy incorporates a variety of perpetual preferred stocks to continuously raise funds for Bitcoin purchases in any market environment while limiting dilution of common stock. Different series offer varying yields and maturities, allowing financing costs to match investor preferences at the time. Convertible Notes: In February, Strategy issued $2 billion of 0% convertible senior notes due in 2030 at a conversion price of $433.43. These notes do not pay interest, but bondholders have the right to convert them into Strategy's Class A common stock if the stock price exceeds $433.43. While conversion to equity would further dilute existing shareholders, it would eliminate Strategy's debt obligations. The company redeemed $1.05 billion of its convertible notes due in 2027 in this manner in the first quarter. This capital structure supports continued Bitcoin accumulation but also introduces significant fixed costs. The preferred shares carry a substantial dividend (8-10% coupon, totaling hundreds of millions of dollars annually) that must be paid regardless of Bitcoin's performance. The strategy maintains a leverage ratio (debt relative to BTC assets) of approximately 20-30%, meaning that the majority of purchases are funded by equity/preferred stock issuance rather than debt. Software Business: Stable but Minor The traditional analytics business generated revenue of $114.5 million in the second quarter of 2025, a year-over-year increase of 2.7%, returning to growth after a 3.6% decline in the first quarter. Revenue composition continued to shift toward subscription services:
Subscription Services: $40.8 million (up 69.5% year-over-year), now representing approximately 36% of total revenue, compared to approximately 22% in the same period last year.
Product Licenses: approximately $7.2 million, down approximately 22% as customers shift to cloud services.
Product Support: $52.1 million (down 15.6% year-over-year), driven by lower maintenance revenue during the cloud transition.
Other Services: $14.4 million (down 11.8% year-over-year), reflecting lower consulting demand. Software gross profit was $78.7 million (68.8% gross margin), compared to $80.5 million (72.2% gross margin) in the second quarter of 2024. Margin compression was driven by increased subscription service costs (cloud hosting, customer success services) and a decrease in high-margin support revenue. Operating expenses have historically been comparable to gross profit levels, resulting in thin software operating income. Non-Bitcoin operating profit of approximately $32 million in the second quarter indicates that the core business has achieved moderate profitability after years of cost reductions. This software contribution helped cover interest obligations ($17.897 million) and some preferred stock dividends ($49.11 million), but it represented less than 1% of the company's total profit. Strategy expects to operate its business analytics business in a similar manner in the coming quarters, as it remains the company's only cash flow-generating business with actual earnings, given its "buy, hold, don't sell" Bitcoin strategy. However, management's commentary focused on Bitcoin accumulation rather than its product roadmap, suggesting that while software services may continue to exist, it may no longer be a meaningful growth driver or valuation component. Cash Flow Quality and Sustainability Operating profits and other items on a company's financial statements can be adjusted through clever accounting tricks, but cash flow cannot be faked. If cash flow doesn't reflect what the company claims, then there's a problem. Strategy's cash flow profile highlights the low quality of its reported earnings. After deducting $14 billion in unrealized gains, $10 billion in net revenue generated virtually no cash. While the company reported $5.75 billion in GAAP net income, its cash balance increased by only $12 million in the two quarters through 2025. Operating Cash Flow: The software business likely generated modestly positive operating cash flow, just enough to cover basic expenses. After accounting for non-cash items like depreciation and stock-based compensation, true cash earnings from operations were close to breakeven. Investing Cash Flow: Led primarily by the approximately $6.8 billion purchase of Bitcoin in the second quarter, this was funded entirely by financing activities, not operations. Financing Cash Flow: A net $6.8 billion was provided through equity and preferred stock issuance, which was immediately used for Bitcoin purchases, leaving almost no cash on hand. This pattern of negative investing, positive financing, and meager operating cash flow clearly demonstrates that Strategy is an asset accumulation vehicle rather than a cash generator. The company's debt interest (approximately $68 million annualized) and preferred stock dividends (approximately $200 million annualized) contribute to rising fixed costs. If the Bitcoin price stagnates or declines, and capital markets tighten, Strategy could face liquidity pressures, requiring it to sell Bitcoin or issue equity, further diluting its ownership. Despite Strategy's record profits, its stock price fell following the Q2 earnings report as the market priced in unexpected gains from Bitcoin. Subsequently, news of a $4.2 billion STRC stock sale further depressed the stock price. This reaction also reflects investors' understanding that these were not operating profits but rather market capitalization adjustments that could potentially reverse. However, the stock price has remained closely correlated with BTC's price movements. Strategy currently trades at a premium of approximately 60% to Bitcoin’s net asset value (NAV), meaning MSTR investors are paying $1.60 for every $1 of Bitcoin on Strategy’s balance sheet. Why pay the premium instead of buying Bitcoin directly? Reasons for the premium include:
Exposure to rising per-bitcoin prices through the company structure
Michael Saylor's strategic execution and market timing
Scarcity value as a proxy for liquid Bitcoin in the equity market
Option value of future accretive financings
This premium supports a self-reinforcing strategy: issuing shares at a premium to NAV to purchase more Bitcoin, potentially increasing existing shareholders' per-bitcoin holdings. If Strategy's stock price is $370 and its Bitcoin NAV is $250 per share, the company can sell new shares at $370 and use that cash to purchase $370 worth of Bitcoin. Existing shareholders now own more Bitcoin per share than they did before the dilution. Despite the massive dilution, Strategy's "Bitcoin per share" metric has increased 25% year-to-date, validating the strategy's effectiveness during Bitcoin's bull run. Strategy's Bitcoin investment requires investors to employ unconventional methods, as traditional valuation metrics have become meaningless. Why? Strategy's second-quarter revenue ($114 million) indicates an annualized revenue of $450 million, while its current enterprise value is $120.35 billion. This means Strategy's stock price-to-earnings ratio exceeds 250 times its revenue, an astronomical multiple in traditional terms. The problem is, however, that when investors buy Strategy shares, they aren't betting on its software analytics business. The market is pricing in Bitcoin's potential for appreciation, a potential magnified by corporate leverage and continued accumulation. Investment Perspective: The quarterly results reflect Strategy's complete transformation from a software company to a leveraged Bitcoin investment vehicle. While significant, the $10 billion quarterly profit represents unrealized appreciation rather than operational success. For equity investors, Strategy offers high-risk Bitcoin exposure, accompanied by significant leverage and active accumulation, but at the expense of extreme volatility and dilution risk. This strategy performed well during Bitcoin's bull market, as it facilitated value-added financing to fund additional purchases while mark-to-market gains drove reported earnings soar. However, the sustainability of the model relies on continued market access and Bitcoin's appreciation. Any significant cryptocurrency market decline would quickly reverse Q2's performance, while fixed obligations such as debt interest and preferred stock dividends would remain. However, of all Bitcoin vaults, Strategy is best positioned to absorb such unexpected shocks. It began accumulating Bitcoin more than five years ago and has done so systematically at a significantly lower cost than other firms. Today, Strategy holds 3% of all Bitcoin in circulation. Strategy's premium valuation reflects the market's confidence in Michael Saylor's vision and execution for Bitcoin. Investors are betting on Bitcoin's long-term trajectory and management's ability to leverage the company's structure to maximize accumulation.
With Bitcoin holdings now accounting for over 99% of economic value, traditional software metrics have become less important in defining Strategy's future cryptocurrency story.
This is Strategy's analysis of its Q2 earnings report. We will be back with new coverage soon.
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