Bitcoin Acquisition and Strategy - In 2023, MicroStrategy purchased approximately 56,650 bitcoins at an aggregate purchase price of approximately $1.902 billion, averaging $33,580 per bitcoin[29]. - As of December 31, 2023, MicroStrategy held $3.626 billion in digital assets, consisting of approximately 189,150 bitcoins, with cumulative impairment losses of $2.269 billion due to bitcoin price fluctuations[30]. - As of February 14, 2024, MicroStrategy's bitcoin holdings were approximately 190,000 bitcoins, acquired at an aggregate purchase price of $5.933 billion, averaging $31,224 per bitcoin[31]. - The company did not sell any bitcoin during 2023, maintaining a long-term holding strategy[29]. - MicroStrategy's Treasury Reserve Policy allows for the accumulation of bitcoin as a primary treasury reserve asset, subject to market conditions[24]. - The company aims to leverage the Lightning Network for developing software products and service offerings[26]. - The company believes Bitcoin serves as a hedge against inflation and an attractive store of value amid economic uncertainty[50]. - The company plans to increase its bitcoin holdings, which may lead to greater volatility in earnings compared to prior periods[140]. - The company has acquired approximately 190,000 bitcoins at an aggregate purchase price of $5.933 billion, which enhances the risks associated with its bitcoin acquisition strategy[153]. - The company adopted bitcoin as its primary treasury reserve asset in September 2020, but bitcoin markets are characterized by significant volatility and limited liquidity[158]. Market and Regulatory Environment - The SEC approved the listing and trading of spot Bitcoin exchange-traded products (ETPs) on U.S. national securities exchanges for the first time on January 10, 2024[41]. - Regulatory scrutiny of digital assets is increasing, with various U.S. agencies examining the operations of digital asset networks and exchanges[56]. - The emergence of other digital assets and central bank digital currencies (CBDCs) could negatively impact Bitcoin's market value[46]. - The legal and regulatory landscape for digital assets remains uncertain, posing risks that could impact the price of bitcoin and the company's ability to operate[125]. - The SEC filed a complaint against Binance Holdings Ltd. on June 5, 2023, alleging multiple violations, including operating as unregistered exchanges and misleading customers[135]. - On November 21, 2023, Binance agreed to pay $4.3 billion in penalties to resolve a multi-agency investigation and will cease operations in the U.S.[135]. - Regulatory developments, including the European Union's Markets in Crypto Assets Regulation effective June 2023, may impact the digital asset market and operations of digital asset firms[128]. - The U.S. government is considering a federal framework to regulate nonbank payment providers and digital asset service providers, which could affect market dynamics[128]. - The SEC has reopened the comment period for a proposal to amend the definition of "exchange" to include digital asset trading systems, which could have a sweeping impact on the industry[128]. - The company faces enhanced regulatory scrutiny due to its bitcoin acquisition strategy and the potential for increased regulatory requirements following the FTX collapse[146][149]. Financial Performance and Risks - The company generated net income for the fiscal year ended December 31, 2023, primarily due to a $553.6 million tax benefit and a $44.7 million gain on debt extinguishment[106]. - The company had $757.6 million of deferred tax assets as of December 31, 2023, with a $1.4 million valuation allowance, largely related to the impairment on bitcoin holdings[107]. - The company may incur operating losses in future periods if revenues do not offset operating expenses or if significant impairment losses related to digital assets occur[106]. - The company has experienced fluctuations in quarterly operating results, which could adversely affect the market price of its class A common stock[102]. - The company may face greater than anticipated tax liabilities due to changes in earnings, tax laws, and the sale of bitcoin at prices above cost basis[108]. - The company’s bitcoin holdings significantly affect its financial results and the market price of its class A common stock, with potential for greater impact if holdings increase[117]. - The price of bitcoin is influenced by various factors, including market sentiment, regulatory actions, and environmental concerns, which could adversely affect the company's financial condition[124]. - The company may experience significant volatility in reported earnings due to fluctuations in bitcoin prices, which could adversely affect the market price of its class A common stock[137]. - A significant decrease in the market value of bitcoin could adversely affect the company's ability to service its indebtedness, as most assets are concentrated in bitcoin holdings[168]. - The company faces risks related to the custody of bitcoin, including potential loss or destruction of private keys and cyberattacks[163]. Operational and Market Challenges - The analytics market is highly competitive, with key competitors including IBM, Microsoft, Oracle, Salesforce, and SAP, impacting MicroStrategy's market positioning[80]. - The company may face challenges in maintaining relationships with channel partners, which are crucial for revenue growth[175]. - The shift from product licenses to cloud subscriptions may lead to lower revenue recognition in the current period, impacting operating results and cash flows[174]. - The long sales cycles can exceed nine months, increasing the risk of delays and affecting revenue recognition[180]. - The company is exposed to risks from international operations, including economic uncertainties and changes in currency rates, which may adversely affect financial condition and cash flows[207]. - Business disruptions due to geopolitical tensions, natural disasters, or pandemics could materially impact operating results and internal controls[205]. - The company’s reliance on third-party data centers and services, such as AWS and Azure, poses risks that could severely impact business operations[205]. - Cybersecurity incidents could adversely affect business operations and financial results, especially related to AI applications[188]. Employee and Corporate Governance - As of December 31, 2023, the company had a total of 1,934 employees, a decrease from 2,152 in 2022, reflecting a reduction of approximately 10.1%[96]. - The company continues to expand its equity compensation programs to attract and retain talent, reflecting a commitment to employee engagement and development[98]. - The company has not experienced any work stoppages and considers its relations with employees to be good[96]. - The company is subject to evolving data protection regulations, including GDPR, which imposes strict requirements on the handling of personal data and can result in significant fines for non-compliance[83]. - The company is subject to compliance with the new EU-U.S. Data Privacy Framework (DPF) and the UK Extension to the DPF, which may require adjustments in data transfer practices[88][90].
MicroStrategy Inc Series A Pfd(STRK) - 2023 Q4 - Annual Report