Summary Strategy (MSTR) posted a Q1 revenue miss and a massive $12.8 billion net loss due to Bitcoin impairment. Management shifted from a 'never sell' to an 'actively managed' Bitcoin policy, potentially selling coins to maximize Bitcoin value per share. Dividend obligations on preferred shares now exceed $1.45 billion annually, with heavy share issuances diluting founder control. After the bell on Tuesday, we received first quarter results from Strategy ( MSTR ). The software firm turned Bitcoin holding company has seen its shares rebound in recent weeks thanks to the rise in Bitcoin's price. While the company saw a major loss in Q1 thanks to the drop in crypto prices during that period, it was an interesting announcement on Tuesday that will likely get a lot of attention. Previous coverage of the name I last covered Strategy back in mid-March, after which point the company passed a key cost milestone for its Bitcoin stash. With continued large sales of its Strategy Inc 9.0% SERIES A PERPETUAL STRETCH PREF STK ( STRC ) that featured a large and growing dividend, the company was on the hook for over $1 billion in annual dividend payments to its preferred share holders. Since that time to Tuesday's close, Strategy shares have surged by nearly 27%, nearly triple the 8.4% rise in the S&P 500. Q1 results and Bitcoin holdings update While Bitcoin gets the majority of attention, Strategy still does have a software business in operation. For the first quarter of 2026, total revenues were $124.3 million, an increase of nearly 12% year over year, but the number missed street estimates by about $0.7 million. The company saw nearly 69% growth in subscription services, with just over 11% growth in other services. However, product licenses and product support revenues both took sizable hits over the year ago period. Gross margin dollars increased by more than $6 million to over $83 million, although the company had a nearly $15 million loss after counting its three main operating expenses. After that, you have to add in the more than $14.5 billion unrealized loss on the Bitcoin portfolio. With such a large loss, the company realized a net tax benefit, and after including preferred dividend payments, the net loss was nearly $12.8 billion for the quarter, roughly three times the year ago Q1 net loss. Strategy finished last year with 672,500 Bitcoins on the balance sheet, but it has continued its purchases this year at a brisk pace. There has been 22% growth so far this year, with the total being over 818,300 as of May 3rd. As of late Tuesday night, that Bitcoin pile was worth about $66.49 billion. Thanks to the rise in Bitcoin prices recently, Strategy is now up about $4.6 billion on its overall purchases, with an average cost price of $75,537. Rising dividend payments and potential Bitcoin sales Strategy management has continued to sell a lot of STRC shares with their 11.5% annual yield since my previous article. As a result, annual dividend payments to preferred holders are now over $1.45 billion. Last year, the company announced the formation of a cash treasury to help with ongoing dividend payments. The cash balance was $2.2 billion at the end of this March, but Strategy's balance sheet also had roughly $8.2 billion in total debt. In addition to STRC, there's been a lot of Class A common stock sales to fund Bitcoin purchases. Over 330 million shares of that class are now outstanding according to the company's data , compared to just 76 million at the end of 2020. With the surge in the share count, founder and former CEO Michael Saylor has seen his total voting control plunge in recent years as the chart below shows. His control might be less than a third of the company at some point later this year if brisk Class A share sales continue. Michael Saylor Voting Control (Strategy Proxy Filings) The interesting news however on Tuesday was a major shift in Bitcoin holdings guidance from the company. On the conference call, the company's CEO adjusted the "never sell" Bitcoin policy to one of "actively managing the balance sheet to maximize Bitcoin value per share". Phong Le, the CEO, stated that Strategy may now sell the coin to buy US dollars or the firm's debt if the move would be accretive to bitcoin per share. It will be interesting to see if these comments from Strategy management put in a short term top for Bitcoin. If one of the leading supporters of the crypto movement has suddenly decided to sell some coins, that seemingly would mean they believe Bitcoin is overvalued. A Bitcoin decline would then hurt the value of Strategy shares, and they did fall a few percent in the after hours session on this new guidance. The current valuation picture When you look at the valuation of Strategy, there are two ways to think about it. The first is the normal way, looking at the market cap of the common stock, but you could also include the total trading value of the preferreds as well. Strategy had been trading at a significant premium to its Bitcoin holdings for a while, but that premium dropped late last year, and shares have actually traded at a discount to their holdings for a period of time. As of late Tuesday night, the total value of Strategy's two common share classes and its four preferred share classes was a little more than $77.5 billion. At that time, the value of its Bitcoin holdings was about $66.5 billion. However, if you only do the Class A and B shares outstanding, the market cap was about $65.6 billion. Thus, Strategy was back to trading at a premium to its holdings when using the preferreds, but still at a discount when excluding them. Throw in some value for the actual software business, and the discount grows for just the Class A and B shares. One of the key parts of the bull case in recent years has been index inclusion. Strategy shareholders were hoping that the company would be added to the S&P 500, allowing a bit of institutional buying. However, because Bitcoin prices tanked late last year and into early 2026, the company reported a large loss in Q1 and thus is currently ineligible for inclusion. Unless Bitcoin prices rebound and the company can start reporting positive net income for a while, it doesn't appear that Strategy will make it into this all-important index. Final thoughts and recommendation Strategy announced its Q1 results on Tuesday afternoon, which featured a revenue miss from its software business and a big Bitcoin impairment thanks to the crypto's fall earlier this year. While the massive loss is just a paper one and doesn't really impact the day to day story here, it does push back the potential timeline for S&P 500 inclusion. More importantly, however, was management's announcement that it may start selling Bitcoin to purchase either US dollars or its own debt. At the moment, I continue to rate the common stock as a "Hold." If you are a long-term believer in Bitcoin, it seems likely that Strategy shares would rise over time, but you might be better off just buying Bitcoin directly or through one of the ETFs like the iShares Bitcoin Trust ETF ( IBIT ). I do believe that in the long run, Strategy will continue to sell a lot of Class A shares to purchase more Bitcoin as well as fund dividend payments, which could provide a headwind to the possible upside here.
