Bitcoin Acquisition and Holdings - In 2022, MicroStrategy purchased approximately 8,813 bitcoins for an aggregate price of approximately $287.9 million, averaging $32,670 per bitcoin, and sold about 704 bitcoins for $11.8 million at an average sale price of $16,786 per bitcoin [29]. - As of December 31, 2022, MicroStrategy held $1.840 billion in digital assets, consisting of approximately 132,500 bitcoins, with cumulative impairment losses of $2.153 billion due to trading price fluctuations [30]. - As of February 15, 2023, MicroStrategy's bitcoin holdings were acquired at a total cost of $3.993 billion, averaging $30,137 per bitcoin, while the market price was $24,163.86 [31]. - MicroStrategy's bitcoin acquisition strategy involves using liquid assets exceeding working capital requirements and may include issuing debt or equity securities to fund additional bitcoin purchases [22]. - The company has not set a specific target for the amount of bitcoin to hold and will continue to monitor market conditions for potential additional financings [27]. - MicroStrategy's treasury reserve policy includes cash assets and bitcoin as primary treasury reserve assets, with bitcoin serving as a long-term holding strategy [28]. - The company believes bitcoin serves as a store of value and a hedge against inflation due to its limited supply and decentralized nature [47]. - The company anticipates increasing its bitcoin holdings in the future, which may lead to greater volatility in earnings compared to prior periods [134]. - The concentration of bitcoin holdings enhances risks, particularly as the price of bitcoin has recently experienced significant declines [149]. - The company has entered into a bitcoin-collateralized loan and may consider issuing additional debt or financial instruments collateralized by bitcoin holdings [144]. - The company's bitcoin holdings are expected to represent a larger proportion of total assets in the future, increasing exposure to market volatility [134]. - The company’s bitcoin acquisition strategy exposes it to risks associated with the volatility of bitcoin and potential impairment losses [116]. - The company is subject to counterparty risks related to custodians of its bitcoin holdings, which could adversely affect financial condition [117]. - A significant decrease in the market value of bitcoin holdings could adversely affect the company's ability to service its indebtedness, as the majority of its assets are concentrated in bitcoin [161]. Financial Performance and Risks - The company generated a net loss for the fiscal year ended December 31, 2022, primarily due to digital asset impairment losses [106]. - The company reported a net loss of $1.470 billion for the year ended December 31, 2022, compared to a net loss of $535.5 million for the year ended December 31, 2021 [133]. - Digital asset impairment losses of $1.286 billion for the year ended December 31, 2022 represented 76.9% of the company's operating expenses, compared to 69.0% in the previous year [133]. - The company’s financial results may experience variability due to the potential impairment of bitcoin holdings, which could materially affect reported earnings [132]. - The price of bitcoin is subject to significant fluctuations influenced by various factors, including regulatory changes and market sentiment [131]. - The company may face increased tax liabilities due to changes in tax laws and regulations, particularly under the Inflation Reduction Act of 2022 [110]. - The company’s operating results may fluctuate significantly due to various factors, including bitcoin price volatility and changes in customer demand [102]. - The company faces risks related to non-performance by counterparties in its bitcoin acquisition strategy, which could result in significant losses [163]. Regulatory and Compliance - The company is committed to ongoing collaboration with regulatory bodies to ensure compliance with evolving digital asset regulations [51]. - Regulatory scrutiny is heightened due to the company's bitcoin acquisition strategy and potential compliance requirements [142]. - The company is subject to various global data protection laws, including GDPR, which can impose fines of up to €20 million or 4% of global annual revenue for non-compliance [86]. - Regulatory changes reclassifying bitcoin as a security could classify the company as an "investment company" under the Investment Company Act of 1940, potentially adversely affecting the market price of bitcoin and the company's Class A common stock [159]. - The company’s digital asset strategy is subject to evolving regulatory frameworks that could impact the price and transferability of bitcoin [135]. - Compliance with changing privacy regulations may require substantial resources and could materially affect the company's business operations [218]. Business Operations and Strategy - The company emphasizes the importance of its enterprise analytics software in empowering organizations to leverage data for actionable insights [54]. - MicroStrategy's cloud service received FedRAMP authorization on November 29, 2022, certifying compliance with U.S. federal cloud security standards [63]. - The MicroStrategy platform offers over 200 connectors to popular data sources, enhancing flexibility and agility for organizations [59]. - The company has established strategic alliances with third-party vendors to enhance customer success in enterprise intelligence initiatives [76]. - The company relies on its enterprise analytics software business for revenue, which is subject to evolving market demands and regulatory restrictions on data usage [166]. - The company faces risks related to government contracting, including budget constraints and potential contract terminations [198]. - The company is exposed to risks from geopolitical tensions, natural disasters, and pandemics, which could disrupt operations [190]. Employee and Organizational Structure - As of December 31, 2022, MicroStrategy had a total of 2,152 employees, with 719 based in the United States and 1,433 internationally [96]. - The company expanded equity compensation programs worldwide in 2022 to enhance employee engagement and retention [98]. - The company’s ability to attract and retain skilled personnel is critical for future success, particularly the retention of key executives [204]. Market Competition - The analytics market is highly competitive, with MicroStrategy competing against major players like IBM, Microsoft, and Oracle [81]. - The company faces risks related to software errors and security vulnerabilities that could adversely affect revenue and reputation [184]. - The company’s marketing strategy focuses on increasing brand awareness through digital media, events, and partnerships, particularly highlighting its bitcoin acquisition strategy [78].
MicroStrategy Inc Series A Pfd(STRK) - 2022 Q4 - Annual Report