Bitcoin Holdings and Strategy - As of February 13, 2026, the company held approximately 717,131 bitcoins, acquired at an aggregate purchase price of $54.5 billion, with an average purchase price of approximately $76,027 per bitcoin [29]. - The market price of one bitcoin on February 13, 2026, was reported at $68,734, indicating a potential unrealized loss on the company's bitcoin holdings [29]. - The bitcoin acquisition strategy involves using proceeds from capital raising transactions, including offerings of Class A common stock and preferred securities, to acquire bitcoin [23]. - The company actively manages its bitcoin holdings and capital structure to maintain long-term durability, liquidity, and flexibility [35]. - The company evaluates its bitcoin strategy continuously based on market conditions, capital structure, and anticipated cash resource needs [25]. - The capital management strategy focuses on achieving accretive acquisitions of bitcoin while managing cost of capital and financial obligations [37]. - The company’s bitcoin strategy relies heavily on obtaining equity and debt financing, which is critical for executing its bitcoin purchases [123]. - Bitcoin has traded between $65,000 and $120,000 in the past year, highlighting its volatility and potential impact on financial results [120]. - The company expects significant variances in gains and losses on bitcoin holdings due to market volatility, which could adversely affect financial results [128]. - The company may pursue strategies to generate income from its bitcoin holdings, which could subject it to additional regulatory compliance requirements [158]. Financial Performance and Risks - For the fiscal year ended December 31, 2025, the unrealized loss on digital assets was $5.40 billion, partially offset by a deferred tax benefit of $1.55 billion [110]. - The company experienced significant fluctuations in operating results, with quarter-to-quarter comparisons not indicative of future performance [108]. - The cost basis of the bitcoin holdings was less than its fair market value as of December 31, 2025, but has since reversed, indicating potential future tax liabilities [111]. - Deferred tax liabilities related to unrealized gains on bitcoin holdings were approximately $2.42 billion as of December 31, 2025 [111]. - The company does not expect its enterprise analytics software business to generate sufficient cash flow to meet financial obligations over the next twelve months [112]. - The company may face increased tax liabilities due to changes in tax laws and regulations, which could adversely affect financial results [114]. - The company incurred $4.06 billion of cumulative impairment on its bitcoin holdings through December 31, 2024, reflecting the volatility of bitcoin prices [145]. - The company's class A common stock value declined significantly following the approval of spot bitcoin ETPs, indicating a shift in investor preference [150]. Regulatory Environment - The SEC approved the first U.S. spot bitcoin ETPs in January 2024, expanding access through regulated investment vehicles [59]. - The SEC has initiated enforcement actions against major participants in the digital asset industry, which could materially affect the price of bitcoin [136]. - Regulatory actions and evolving laws may materially affect the nature of digital asset markets and the company's bitcoin strategy [71]. - The current regulatory environment is influenced by past events, such as the FTX bankruptcy, which may impose significant costs on the company's ability to transact in bitcoin [159]. - Regulatory developments could impact the availability of custodial services, affecting the company's ability to diversify its bitcoin custody arrangements [178]. - The company faces risks related to potential regulatory changes that could classify bitcoin as a security, impacting its business operations and market price [181][182]. Custodial and Security Risks - As of February 13, 2026, bitcoin holdings were distributed among three custodians: Coinbase (40%), Anchorage (37%), and Fidelity (23%) of total bitcoin custodied [45]. - The company is subject to counterparty risks related to custodians, which could inhibit ownership rights and access to bitcoin holdings [125]. - The company does not maintain separate insurance for potential bitcoin losses, exposing it to significant risks in case of custodial insolvency [179]. - As of December 31, 2025, custodians maintain commercial insurance coverage of $320 million, $100 million, and over $100 million for bitcoin losses, which is insufficient to cover the entirety of the company's bitcoin holdings [179]. - Cybersecurity risks remain a significant concern, with potential breaches leading to loss of bitcoin and adverse effects on financial condition [174]. - Cybersecurity incidents could adversely affect the company's operations, especially concerning the integration of AI capabilities [195]. Market Dynamics and Competition - Bitcoin consistently ranks among the most liquid traded assets globally, with substantial daily trading volume across spot and derivatives markets [58]. - The emergence of stablecoins and government-backed digital currencies could negatively impact bitcoin's price and market position [64]. - The emergence of alternative digital assets and stablecoins, particularly following the enactment of the GENIUS Act, poses a competitive threat to bitcoin [168]. - Reports indicate that over 70% of trading volume on certain unregulated exchanges may be attributed to wash trading, raising concerns about the actual size of the bitcoin market [163]. - The availability of alternative investment vehicles for bitcoin may adversely affect the market price of the company's listed securities [148]. Employee and Operational Considerations - As of December 31, 2025, the company had a total of 1,539 employees, with 448 based in the United States and 1,091 internationally [98]. - The company may struggle to recruit or retain skilled personnel, which could adversely affect its business and financial condition [214]. - The company faces various risks in doing business with government entities, including procurement challenges and budgetary constraints [209]. Technology and Product Development - The company’s cloud solution for government achieved FedRAMP authorization, ensuring compliance with U.S. federal cloud security standards [82]. - The Strategy One platform supports medium to large enterprise deployments, delivering real-time insights across web, mobile, and custom applications [80]. - The company offers cloud subscriptions typically for 36 months, with standard support included and premium support available for additional fees [85]. - The integration of AI into the company's analytics offerings could incur substantial costs and may result in reputational harm or legal liabilities [194]. - The company’s competitive differentiators include a cloud-native architecture optimized for major hyperscalers, providing flexibility and ease of integration [81]. Legal and Compliance Issues - The company is subject to various privacy and data protection laws, including the GDPR, which imposes significant compliance requirements and potential penalties [95]. - The company has implemented policies to comply with anti-money laundering and sanctions laws, but risks regulatory proceedings if bitcoin is acquired from bad actors [156][157]. - Customer agreements may limit the company's exposure to product liability claims, but these provisions may be unenforceable in certain jurisdictions [202]. - Any systems failure or security breach could result in legal proceedings against the company, impacting its reputation and financial performance [219].
MicroStrategy Inc Series A Pfd(STRK) - 2025 Q4 - Annual Report