Strategy, a prominent firm known for its substantial bitcoin treasury, reported a third-quarter profit of $2.8 billion. This figure marks a significant decrease from the record $10 billion profit posted in the previous quarter, reflecting a slowdown in bitcoin's market momentum and a tightening of the company's valuation premium.
Despite the sharp decline in profit, the company's diluted earnings per share of $8.42 surpassed analyst expectations of $8.15. The results come as Strategy navigates a cooling digital asset market, slowing its pace of bitcoin acquisition for the third consecutive quarter.
Key Takeaways
- Strategy reported a Q3 profit of $2.8 billion, down from a record $10 billion in Q2.
- The company's bitcoin accumulation slowed, adding approximately 43,000 BTC, its lowest quarterly addition this year.
- Total bitcoin holdings now stand at 640,808 BTC, valued at nearly $69 billion.
- The company is increasing the dividend on its STRC preferred stock to 10.5% to maintain investor interest.
- Strategy's stock valuation premium, measured by its mNAV multiple, has fallen to its lowest point since March 2023.
Slowing Momentum and Market Realities
Strategy's third-quarter financial performance highlights the company's close ties to the fluctuating price of bitcoin. The reported $2.8 billion profit is the weakest since the firm adopted fair-value accounting in January, a method that requires it to mark its assets to their current market value.
The cooling crypto market was a primary driver of the results. Bitcoin was trading near $107,000 at the time of the report, a figure that is approximately 15% lower than the all-time high reached in early October. This price action directly impacted Strategy's bottom line and investor sentiment.
In response to the earnings release, the company's stock, which had closed at a more than six-month low of around $254, saw a modest recovery, rising roughly 4% in after-hours trading.
Understanding the mNAV Multiple
A key metric for evaluating Strategy is its mNAV (market-adjusted net asset value) multiple. This ratio compares the company's enterprise value to the market value of its bitcoin holdings. A multiple above 1.0x indicates the market is willing to pay a premium for Strategy's stock over the direct value of its bitcoin.
The firm's mNAV multiple has compressed to approximately 1.2×, its lowest level since March 2023. This is a significant contraction from its peak of 3.9× in November of last year, a period that followed a major political election and a sudden surge in bitcoin's price.
A Shift in Bitcoin Accumulation Strategy
The company's renowned strategy of accumulating bitcoin has shown signs of deceleration. During the third quarter, Strategy added roughly 43,000 bitcoins to its treasury. While a substantial amount, it represents the slowest quarter of accumulation this year.
This slowdown is a notable trend, following additions of 69,000 BTC in the second quarter and over 80,000 BTC in the first quarter. The tapering of weekly purchases has occurred in tandem with the shrinking mNAV premium, which makes raising capital through new issuance less advantageous.
Total Bitcoin Holdings
As of the latest report, Strategy holds a total of 640,808 BTC. At current market prices, this vast digital asset portfolio is valued at just under $69 billion.
Despite the slower pace, the company remains the largest corporate holder of bitcoin, and its balance sheet continues to grow with each new purchase. The core mission of acquiring and holding bitcoin appears unchanged, though the tactics for doing so are adapting to market conditions.
Innovative Funding and Investor Incentives
To sustain its bitcoin acquisition efforts, Strategy has increasingly relied on a unique suite of financial instruments: high-yield preferred stocks. These securities, which trade under tickers like STRC, STRF, STRK, and STRD, allow the company to raise capital without diluting its common stock.
These instruments function by paying fixed or variable dividends to investors, providing an attractive yield. In a strategic move to bolster investor demand amid market uncertainty, Strategy announced it would raise the dividend on its variable-rate STRC security.
The dividend for November will increase to 10.5%, up from 10.25% in the previous month. This adjustment is designed to make the security more appealing, particularly when market prices are dipping. The funds for these dividends are largely sourced from ongoing equity and preferred stock issuance, rather than operational cash flow, allowing the company to channel its resources directly into further bitcoin purchases.
This financial engineering demonstrates Strategy's commitment to its accumulation model, even as the broader market environment becomes more challenging. By adjusting yields on its funding instruments, the company can continue to attract capital and execute its long-term vision of building a massive bitcoin treasury for its shareholders.
