Early adoption of new accounting standards means the company could report a gain of more than $300 per share for the first quarter and meet the remaining requirement for index inclusion, the report said.

MicroStrategy (MSTR) could surprise Wall Street analysts and report better-than-expected earnings if the software company chooses to adopt new accounting standards, a move that means it could qualify for inclusion in America’s most important stock index, the S&P 500, broker Benchmark said in a research report on Thursday.

The company will report results for the first quarter 2024 after the close of markets on April 29.

MicroStrategy’s corporate strategy is partly based on the acquisition and holding of bitcoin. As of March 19 it held 214,246 bitcoin worth $13.9 billion at current prices. Benchmark notes that since the software company started holding bitcoin on its balance sheet it has recorded $2.27 billion in cumulative impairment losses due to a Financial Accounting Standards Board (FASB) rule called ASC 350.

The FASB issued new guidance in December last year that allows companies that hold digital assets on their balance sheet to measure them at fair value, and record changes in fair value in net income in each reporting period. The new rules become effective as of Jan. 1, 2025, but early adoption of the standard is allowed.

“The impact of doing so on MSTR’s reported earnings per share would be massive: the company in its 2023 10-K report estimated that early adoption would increase its 2024 beginning retained earnings balance by ~$3.1 billion,” analyst Mark Palmer wrote.

Analyst consensus is for MicroStrategy to report a first-quarter 2024 loss per share of $0.55. Benchmark estimates that if the company decides to opt for early adoption of the new standard it could report a gain of more than $300 per share for the quarter.

MicroStrategy currently meets nearly all of the criteria for S&P 500 inclusion, the report said. The company is based in the U.S., its shares are highly liquid, 50% of its outstanding shares are available for trading, and its market cap is greater than $18 billion.

For the index committee to consider a stock for inclusion in the S&P 500 it must also report positive earnings in its most recent quarter. Benchmark notes that MicroStrategy has reported losses in 10 of the past 14 quarters. Early adoption of the new standards means the software company could meet this final criterion.

“Inclusion in the S&P 500 would position MSTR’s stock valuation to receive an ongoing boost from the price-agnostic purchases of its shares resulting from enormous passive inflows,” Palmer wrote.

Still, uncertainty around the tax impact of adopting the FASB’s updated guidance could cause MicroStrategy to hold off on early adoption, the report added

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Rising bitcoin prices mean a stronger balance sheet, higher stock prices and easier debt repayment, without the company needing to sell its holdings, the report said.

Whether MicroStrategy (MSTR) sells its bitcoin (BTC) tokens to pay down debt is closely tied to how the cryptocurrency performs. The position is not large enough to distort prices but it does present a sentiment risk in a down cycle, Bernstein said in a research report Wednesday.

The business analytics software company is the largest corporate holder of bitcoin as a balance sheet treasury asset, owning around 140,000 BTC at an average cost of $29,800. The stash is worth about $4 billion at current prices, the report said.

The company has about $2.2 billion in debt, with repayments due in 2025 and beyond. It has pledged 15,000 of its bitcoins, Bernstein said.

“High BTC prices mean a stronger balance sheet, higher stock prices and easier debt repayment without selling its BTC holdings,” analysts Gautam Chhugani and Manas Agrawal wrote.

MicroStrategy holds around 0.7% of total bitcoin in circulation, representing about 20% of daily average traded volume in spot markets, the note said.

At those levels, MicroStrategy does not “necessarily pose a concentration risk” even if trading volumes fell during a bear market, though it may affect market sentiment.

“The potential liquidation of MicroStrategy’s BTC during bear markets creates an overhang for BTC in a down cycle,” it said.

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The Lightning Address protocol allows users to send bitcoin over the Lightning Network to a wallet identifier resembling a conventional email address.

Michael Saylor, the outspoken bitcoin proponent and co-founder of business analytics software firm MicroStrategy (MSTR), has integrated Bitcoin’s Lightning Network into his corporate email address. This means anyone can use that email address – saylor@microstrategy.com – to send bitcoin (BTC) to the 58-year-old billionaire.

The integration uses The Lightning Address protocol, which allows developers to replace a standard Lightning invoice, or payment request, with an internet identifier such as an email address.

The Lightning Network is Bitcoin’s layer 2 scaling solution designed to make bitcoin payments cheaper and faster.

Saylor, who is reportedly worth around $1.2 billion and whose company has amassed approximately 140,000 BTC (about $4 billion at current prices), has been receiving small bitcoin donations from fans after tweeting about the integration.

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The software company also sold a small amount of the cryptocurrency for the first time.

MicroStrategy (MSTR), the business software vendor that was co-founded by crypto proponent Michael Saylor, has added to its bitcoin (BTC) stockpile, purchasing about 2,395 bitcoins for $42.8 million between Nov. 1 and Dec. 21 through its MacroStrategy subsidiary, according to a filing with the Securities and Exchange Commission on Wednesday.

Last Thursday, the company sold about 704 bitcoins for $11.8 million on the premise that a loss on the transaction would offset previous capital gains.

Then on Saturday, the company acquired an additional 810 bitcoins for $13.6 million, bringing its total holdings up to 132,500 bitcoins. That’s worth about $2.25 billion at current prices, compared with MicroStrategy’s acquisition cost of $4 billion.

The sale last week marks the first time MicroStrategy has sold bitcoin since it began acquiring the cryptocurrency in 2020.
In sum, since Nov. 1, the company added about 2,501 bitcoins to its holdings, spending a net $44.6 million.

Shares of MicroStrategy were up marginally in premarket trading, while the price of bitcoin remained little changed at about $16,700.

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