Written by: Prathik Desai
Compiled by: Block unicorn
Today, we delve into Strategy Company's (formerly MicroStrategy) Q2 2025 financial report, marking the first quarter of net positive earnings since adopting fair value Bitcoin accounting, creating one of the largest quarterly profits in the company's history.
Key Points
Strategy's Bitcoin treasury strategy has yielded a net income of $10 billion (compared to a loss of $102.6 million in Q2 2024), entirely driven by $14 billion in unrealized Bitcoin gains under the new accounting standards.
The software business remains stable but secondary, with revenue of $11.45 million (up 2.7% year-over-year), a narrowing profit margin contributing approximately $32 million to underlying operating income.
Aggressive capital raising continues, with $6.8 billion raised in Q2 through equity and preferred stock issuance, expanding Bitcoin holdings to 597,325 BTC, accounting for 3% of the circulating supply, valued at approximately $64.4 billion.
After the S financial report was released, Strategy's stock price fell by 8%, from $401 to $367; subsequently, the stock has recovered to above $370.
The trading price of Strategy's stock is 60% above the net asset value of Bitcoin, meaning investors pay $1.60 for every $1 of Bitcoin held.
Main Argument: As long as Bitcoin prices continue to rise and capital markets remain open, Strategy's Bitcoin treasury strategy is effective, but it introduces enormous earnings volatility and dilution risk, rendering traditional software metrics irrelevant. However, its early entry into the asset management sector provides Strategy with ample buffer space to weather a Bitcoin price crash.
Financial Performance: Bitcoin as a Key Driver
Strategy Analytics reports a net profit of $10.02 billion for Q2 2025, compliant with U.S. GAAP, contrasting sharply with a net loss of $102.6 million in the same quarter last year. Diluted earnings per share reached $32.60, compared to a loss of $0.57 in Q2 2024.
The 9,870% year-over-year increase in net income is almost entirely due to the $14 billion unrealized Bitcoin unexpected gains recognized after adopting fair value accounting in January 2025. This marks a departure from the old accounting system, which required the company to evaluate its BTC holdings at cost minus impairment value, where increases in Bitcoin price were not recognized on the books while any price declines had to be marked as impairment.
The scale of this accounting impact is more pronounced when compared to Strategy's operational business revenues. Strategy's total revenue in the second quarter was only $114.5 million, meaning the company's reported net profit margin exceeded 8700%, a phenomenon entirely caused by the appreciation of cryptocurrency.
Excluding Bitcoin revaluation, the underlying operating income is approximately $32 million, with a healthy profit margin of about 28% for software revenues, but insignificant relative to unexpected gains from cryptocurrency.
Operating income calculated under GAAP reached $14.03 billion, a significant improvement from the $200 million operating loss in the same period last year (including substantial Bitcoin impairment charges under the old accounting system).
Quarterly volatility has been extreme. In Q1 2025, due to Bitcoin falling to around $82,400 in March, GAAP net loss was $4.22 billion. As Bitcoin rebounded to $107,800 in June, the second quarter realized a profit of $10 billion, marking a quarterly turnaround with profits exceeding $14 billion.
Management acknowledges that fair value accounting makes earnings extremely sensitive to Bitcoin's market price. Strategy's profitability is currently primarily affected by cryptocurrency market volatility rather than software sales.
Adjusted net income (excluding equity incentives and small projects) is approximately $9.95 billion, compared to a negative $136 million the previous year, roughly in line with GAAP as Bitcoin-related adjustments far exceed traditional add-back adjustments.
Treasury Financing
As of June 30, 2025, Strategy holds 597,325 Bitcoins, more than 2.5 times the 226,331 held a year ago. Currently, through additional purchases in Q3, the holdings have reached 628,946 BTC. The total cost basis is $46.094 billion (average of $73,290 per BTC), while the market value is approximately $74.805 billion, with unrealized gains of about $29 billion—more than double what was reported for Q2.
In the second quarter, Strategy acquired 69,140 BTC for approximately $6.8 billion, equal to the total funds raised by the company during the same period. The average purchase price in Q2 was about $98,000 per BTC, indicating steady accumulation as prices climbed from the April lows. No Bitcoin sales occurred, adhering to its Chairman Michael Saylor's 'HODL' strategy without realizing any gains.
Financing structure has evolved into complex capital market operations:
Common stock ATM program: In Q2, raised $5.2 billion by issuing approximately 14.23 million shares, with another $1.1 billion raised in July. The program currently has approximately $17 billion capacity remaining.
Preferred Stock Series: The strategy has innovated several types of perpetual preferred stock to continuously raise funds for Bitcoin purchases in any market environment while limiting dilution of common stock. Different series offer varying yields and maturities, aligning its financing costs with investors' preferences at the time.
Convertible Bonds: In February, Strategy issued $2 billion worth of 0% convertible preferred bonds, maturing in 2030, with a conversion price of $433.43. Although these bonds do not provide interest, bondholders have the right to convert them into Strategy's Class A common stock when the stock price exceeds $433.43. While converting to equity would further dilute existing shareholders' interests, it could relieve Strategy of its debt obligations. The company has already redeemed $1.05 billion in convertible bonds due in 2027 using this method.
This capital structure supports ongoing Bitcoin accumulation but also introduces significant fixed costs. Preferred shares carry substantial dividends (8-10% coupon rate, totaling hundreds of millions annually), which must be paid regardless of Bitcoin's performance. Strategy maintains a leverage ratio of approximately 20-30% (debt relative to BTC assets), meaning most of the purchasing funds come from equity/preferred stock issuance rather than debt.
Software Business: Stable but Secondary
Traditional analytics business achieved revenue of $114.5 million in Q2 2025, a 2.7% year-over-year increase, recovering from a 3.6% decline in Q1. Revenue composition continues to tilt towards subscription services:
Subscription services: $40.8 million (up 69.5% year-over-year), now accounting for about 36% of total revenue, compared to about 22% in the same period last year.
Product Licenses: Approximately $7.2 million, down about 22%, due to customers transitioning to cloud services.
Product Support: $52.1 million (down 15.6% year-over-year), due to a decrease in maintenance revenue during the cloud transition.
Other Services: $14.4 million (down 11.8% year-over-year), reflecting reduced consulting demand.
Software gross profit was $78.7 million (gross margin of 68.8%), compared to $80.5 million (gross margin of 72.2%) in Q2 2024.
Margin compression is due to increased costs of subscription services (cloud hosting, customer success services) and a decrease in high-margin support revenues.
Operating expenses have historically been in line with gross profit levels, resulting in thin software operating income. The non-Bitcoin operating profit of approximately $32 million in the second quarter indicates that the core business achieved moderate profitability after years of cost reductions. This software contribution helps pay interest obligations ($17.897 million) and part of the preferred stock dividends ($49.11 million), but accounts for less than 1% of the company's total profit.
It is expected that Strategy will operate its business analytics business similarly in the coming quarters, as this remains the only cash-generating business that can bring actual earnings given its Bitcoin 'buy, hold, but not sell' strategy. However, management's comments focus on Bitcoin accumulation rather than product roadmaps, indicating that while software services may continue, they may no longer be a meaningful growth driver or valuation component.
Cash Flow Quality and Sustainability
Operating profits and other items on the company's financial statements can be adjusted through clever accounting methods, but cash flow cannot be faked. If cash flow does not reflect the situation described by the company, then there is a problem.
Strategy's cash flow situation highlights the low quality of its reported earnings. After deducting $14 billion in unrealized gains, the net income of $10 billion generated almost no cash. Although the company reported a GAAP net income of $5.75 billion, its cash balance increased by only $12 million in two quarters of 2025.
Operating cash flow: The software business may have generated modest positive operating cash flow, just enough to cover basic expenses. After accounting for non-cash items such as depreciation and stock compensation, the real cash earnings from operations are close to breakeven.
Investment cash flow: Primarily driven by approximately $6.8 billion in Bitcoin purchases in the second quarter, fully funded by financing activities rather than operations.
Financing cash flow: A net provision of $6.8 billion through equity and preferred stock issuance, immediately used for Bitcoin purchases, with almost no cash retained.
This model of negative investment, positive financing, and thin operating cash flow clearly indicates that Strategy is an asset accumulation tool rather than a cash-generating business.
The company's debt interest (approximately $68 million annually) and preferred stock dividends (approximately $200 million annually) lead to rising fixed costs. If Bitcoin prices stagnate or decline while capital markets tighten, Strategy may face liquidity pressure, needing to sell Bitcoin or issue stock, further diluting its ownership.
Market Reaction and Valuation
Despite Strategy's profits setting records, its stock price fell after the second quarter earnings report as the market had already absorbed the unexpected gains from Bitcoin. Subsequently, the news of the $4.2 billion STRC market cap stock sale further depressed the stock price. This reaction also reflects investors' understanding that these are not operating profits but rather potential reversals of market cap adjustments.
However, the stock price has remained closely correlated with BTC price movements.
Strategy's current trading price is at a premium of about 60% over the net asset value (NAV) of Bitcoin, meaning MSTR investors pay $1.60 for every $1 of Bitcoin value on Strategy's balance sheet.
Why pay a premium instead of buying Bitcoin directly? Reasons for the premium include:
Gaining exposure to rising Bitcoin per share through corporate structure
Michael Saylor's strategic execution and market timing
Scarce value as a liquid Bitcoin proxy in the equity market
The option value of future accretive financing
This premium supports a self-reinforcing strategy: issuing stock at a price above NAV to purchase more Bitcoin, potentially increasing existing shareholders' per share Bitcoin holdings. If Strategy's stock price is $370, and its Bitcoin NAV is $250 per share, the company can sell new shares at $370 and use that cash to buy Bitcoin valued at $370. Existing shareholders end up with more Bitcoin per share than before dilution. Despite facing significant dilution, Strategy's 'per share Bitcoin' metric still grew by 25% over the year, validating this strategy's effectiveness during the Bitcoin bull market.
Strategy's Bitcoin investment requires investors to adopt unconventional methods for assessment, as traditional valuation metrics have become meaningless. Why?
Strategy's Q2 revenue ($114 million) indicates an annualized revenue of $450 million, while its current enterprise value is $120.35 billion. This suggests that Strategy's stock price is over 250 times its revenue, astronomically in traditional terms. But the issue is that investors are not betting on its software analytics business when buying Strategy stock. The market is pricing in the appreciation potential of Bitcoin, which is amplified by corporate leverage and ongoing accumulation.
Investment Perspective
Quarterly results reflect Strategy's complete transformation from a software company to a leveraged Bitcoin investment tool. The $10 billion quarterly profit, while enormous, represents unrealized appreciation rather than operational success. For equity investors, Strategy offers high-risk Bitcoin exposure, accompanied by significant leverage and active accumulation, at the cost of extreme volatility and dilution risk.
During the Bitcoin bull market, this strategy performed well as it favored accretive financing to fund additional purchases, while market-valued gains caused reported profits to soar. However, the sustainability of this model relies on continued market access and Bitcoin appreciation. Any significant downturn in the cryptocurrency market would quickly reverse Q2's performance, while fixed obligations such as debt interest and preferred stock dividends would remain.
However, among all Bitcoin treasuries, Strategy is the most capable of absorbing such unexpected shocks. It began accumulating Bitcoin over five years ago and has systematically accumulated at costs significantly lower than other companies.
Today, the Bitcoin held by Strategy accounts for 3% of the total circulating supply.
Strategy's premium valuation reflects the market's confidence in Michael Saylor's Bitcoin vision and execution ability. Investors are betting on the long-term trajectory of Bitcoin and the management's ability to utilize the corporate structure for maximum accumulation.
As Bitcoin holdings currently account for over 99% of economic value, traditional software metrics have become less important in defining Strategy's future cryptocurrency narrative.
The above is an analysis report of Strategy's second quarter financial results. We will bring new reports soon.
