Shares of Strategy Inc. (Nasdaq: MSTR) fell about 7% on Thursday after the company released its second-quarter earnings, extending a period of underperformance relative to the bitcoin it holds. The drop came as investors weighed the company's latest financial results and renewed criticism of its capital-raising approach.
Earnings and the bitcoin disconnect
Strategy reported second-quarter results on July 31, but the market's reaction was swift and negative. The company, which holds roughly 214,400 bitcoin on its balance sheet, has long traded at a premium to its underlying bitcoin holdings. That premium has been shrinking in recent weeks, and the post-earnings selloff pushed it further. As of Thursday's close, Strategy's market capitalization was about $28.5 billion, while its bitcoin stash was worth roughly $14.5 billion — meaning the stock still trades at a premium, but a much narrower one than earlier this year.
Schiff's critique of STRF
Bitcoin skeptic Peter Schiff seized on the earnings report to attack the company's use of its Series A Perpetual Strife Preferred Stock (STRF). Schiff argued that the STRF financing increasingly dilutes common shareholders and that the company's bitcoin holdings are worth less than its market cap only because of the premium investors have been willing to pay. “The only reason MSTR trades above its bitcoin holdings is because of the premium,” Schiff wrote on social media. “But that premium is shrinking as the market realizes the STRF is a bad deal for common shareholders.”
Strategy has been using the STRF to raise capital to buy more bitcoin, a strategy that has drawn both praise and criticism. The company's preferred stock offering allows it to raise funds without immediately diluting common shares, but critics say the perpetual nature of the instrument and its dividend obligations create long-term risks.
What the earnings showed
Strategy reported a net loss for the quarter, though the company's focus remains on its bitcoin acquisition strategy rather than traditional profitability metrics. The company added roughly 12,000 bitcoin during the quarter, funded largely through the STRF issuance and other capital markets activities. Revenue from its legacy software business continued to decline, as expected.
The selling pressure on MSTR shares intensified on July 31, the day after the earnings release, with volume well above the daily average. The stock is now down roughly 20% from its 52-week high set in June.
Strategy's next major catalyst will be its bitcoin acquisition pace in the third quarter. The company has signaled it will continue to use the STRF and other instruments to buy more bitcoin, but the market's tolerance for the premium may be tested if the stock continues to slide. The company's next earnings call is scheduled for late October, but investors will be watching weekly bitcoin purchase disclosures for signs of a slowdown.
