Bitcoin Holdings and Strategy - In 2024, the company purchased approximately 258,320 bitcoins for an aggregate price of approximately $22.073 billion, averaging $85,447 per bitcoin[32]. - As of December 31, 2024, the company held $23.909 billion in digital assets, including approximately 447,470 bitcoins, with cumulative impairment losses of $4.059 billion[35]. - The company held approximately 478,740 bitcoins as of February 14, 2025, acquired at a total cost of $31.134 billion, averaging $65,033 per bitcoin[36]. - The company has not sold any bitcoins during 2023 or 2024, indicating a long-term holding strategy[32]. - The company plans to fund further bitcoin acquisitions through issuances of common stock and various fixed-income instruments[29]. - The company expects to continue accumulating bitcoin without a specific target amount, monitoring market conditions for additional financings[30]. - The most recent bitcoin halving occurred in April 2024, reducing the mining reward to 3.125 bitcoins per block[38]. - Bitcoin is viewed as an attractive asset for its potential to serve as a hedge against inflation and a store of value due to its limited supply[56]. - The company primarily purchases bitcoin using proceeds from equity and debt financings, making its strategy dependent on favorable financing conditions[120]. - The company anticipates that the proportion of its total assets represented by bitcoin holdings will increase in the future, leading to greater earnings volatility[143]. Financial Performance and Impairment - The company generated a net loss of $1.790 billion for the fiscal year ended December 31, 2024, primarily due to digital asset impairment losses[102]. - The company incurred $4.059 billion of cumulative impairment on its bitcoin holdings through December 31, 2024, reflecting the volatility of bitcoin prices[139]. - The adoption of ASU 2023-08 on January 1, 2025, will require the company to measure its bitcoin holdings at fair value, resulting in a cumulative-effect net increase to retained earnings of $12.745 billion[106]. - The adoption of ASU 2023-08 is expected to increase the volatility of the company's financial results due to fluctuations in bitcoin prices[124]. - The company's financial results and market price of its listed securities are significantly influenced by the volatility of bitcoin prices[126]. Regulatory Environment - Evolving government regulations regarding digital assets may impact the company's bitcoin strategy and market participation[60]. - The CFTC considers bitcoin a commodity, which subjects it to market manipulation and fraud oversight, while the SEC does not classify it as a security[63][64]. - The company’s bitcoin strategy subjects it to enhanced regulatory oversight, particularly in light of increased scrutiny following the FTX collapse[148][151]. - Regulatory changes could classify bitcoin as a security, potentially subjecting the company to additional regulatory controls and affecting its business strategy[169]. - The company faces significant uncertainty regarding the legal and regulatory framework governing digital assets, which may impact its ability to own or transfer bitcoin[128]. Custody and Security Risks - The company holds substantially all of its bitcoin in custody accounts at U.S.-based custodians, diversifying risk exposure across multiple custodians[52]. - Custodians are selected based on strict security protocols, including offline storage of private keys to mitigate risks associated with unauthorized access and cyberattacks[53]. - The company conducts ongoing due diligence reviews of custodians, including monitoring their financial solvency and regulatory compliance, especially in response to market events like the FTX collapse[54]. - The company believes that its bitcoin holdings are protected from custodian bankruptcy claims due to specific contractual terms and regulatory protections[55]. - The company faces counterparty risks related to custodians of its bitcoin holdings, which could affect access to its assets in case of custodian insolvency[122]. - Security breaches or cyberattacks could result in the loss of bitcoin, adversely affecting the company's financial condition[161]. - The company holds a significant amount of bitcoin with regulated custodians, but the insurance covering losses only accounts for a small fraction of the total value of bitcoin holdings[166]. - The company faces risks related to the custody of bitcoin, including potential loss or destruction of private keys and cyberattacks[165]. Employee and Operational Changes - As of December 31, 2024, the company had a total of 1,534 employees, a decrease from 1,934 in 2023 and 2,152 in 2022, reflecting a reduction of approximately 20.7% year-over-year[90]. - The company’s employee headcount in research and development decreased from 642 in 2023 to 498 in 2024, a reduction of approximately 22.4%[92]. - The company’s total headcount in consulting decreased from 399 in 2023 to 275 in 2024, a decline of approximately 30.9%[92]. Market and Economic Factors - The price of bitcoin has historically been subject to dramatic fluctuations, impacting the company's financial performance[138]. - The company is subject to macroeconomic changes, including interest rates and inflation, which could affect the price of bitcoin[130]. - The emergence of alternative digital assets and stablecoins could negatively impact the price of bitcoin, which was the largest digital asset by market capitalization as of December 31, 2024[157][158]. - The trading price of the company's class A common stock declined significantly after the approval of spot bitcoin ETPs, indicating a shift in investor preference[145]. - The market price of the company's class A common stock may fluctuate widely due to various factors, including changes in bitcoin prices and regulatory developments[213]. Legal and Compliance Risks - The company is subject to various privacy and data protection laws, including the GDPR, which can impose fines of up to €20 million or 4% of global annual revenue, whichever is higher[87]. - Compliance with evolving privacy laws and regulations could lead to substantial costs, fines, or changes in business practices, impacting overall operations[207]. - The company may incur significant legal and financial liabilities due to potential security breaches, which could adversely affect revenues and operating results[210]. Capital Structure and Financing - The company’s outstanding indebtedness was $7.274 billion as of December 31, 2024, with an annual contractual interest expense of $35.1 million[104]. - The company expects to incur additional indebtedness and fixed charges as part of its bitcoin strategy, which may impact its ability to satisfy financial obligations[104]. - The company has issued $18.970 billion of class A common stock through at-the-market equity offering programs between January 1, 2024, and February 14, 2025[219]. - The company may sell class A common stock with an aggregate offering price of up to $4.168 billion under the October 2024 Sales Agreement[220]. - The company has issued various convertible senior notes, including $800 million due in 2032 and $1.010 billion due in 2028, as part of its capital-raising efforts[219]. Technology and Innovation - The company’s cloud-native flagship, Strategy One™, is designed for large-scale analytics deployments across various industries[69]. - Strategy One incorporates Generative AI capabilities to automate and enhance analytics accessibility for non-technical users[70]. - The integration of artificial intelligence into the company's analytics offerings may incur substantial costs and could affect competitive positioning[180]. - Cybersecurity incidents could adversely impact the company's business and results, especially related to AI applications[181].
MicroStrategy Inc Series A Pfd(STRK) - 2024 Q4 - Annual Report