MicroStrategy (MSTR) Q4 2024 Earnings Call Transcript

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MicroStrategy (NASDAQ: MSTR)
Q4 2024 Earnings Call
Feb 05, 2025, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Shirish Jajodia -- MicroStrategy Incorporated

Hello, everyone, and good evening. I am Shirish Jajodia, corporate treasurer and head of investor relations at Strategy. I will be your moderator for Strategy's 2024 fourth quarter earnings webinar. Before we proceed, I will read the safe harbor statement.

Some of the information we provide during today's call regarding our future expectations, plans and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC and our 8-K filed on January 6th, 2025. We assume no obligation to update these forward-looking statements, which speak only as of today. During today's call, we will refer to certain non-GAAP financial measures.

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Reconciliation showing GAAP versus non-GAAP results are available in our earnings release and presentation, which were issued today and are available on our website at strategy.com. I would now like to welcome you all to today's webinar and let you know that we will be taking questions using the Q&A feature at the bottom of your screen. You can submit questions throughout the webinar and Michael, Phong, or Andrew will answer questions at the end of the session. Please be sure to provide your name and your company's name when submitting the questions.

Now I'll walk you through the agenda for today's call. First, Phong Le will cover the business highlights for the fourth quarter and full year of 2024. Second, Andrew Kang will cover the financial results for the fourth quarter and full year of 2024. And then finally, Michael Saylor will provide a strategic review and discuss the recent Bitcoin market updates.

And lastly, we will open up to Q&A. With that, I will turn the call over to Phong Le, president and CEO of Strategy.

Phong Q. Le -- President and Chief Executive Officer

Thank you, Shirish. Hello, everyone. I'd like to welcome you all to today's webinar and our first ever earnings call as Strategy. MicroStrategy Inc.

today announced that it's now doing business Strategy. The MicroStrategy name and logo date back to our incorporation more than three decades ago in 1989. At that time, we positioned ourselves at the forefront of the microcomputer revolution. The term Micro symbolizes precision and our focus on harnessing the power of computing to create business intelligence that changed how companies operate.

There have, of course, been significant changes since then, both in the technology industry and to our strategy. Technology is now ubiquitous and our business strategy and value to our customers is no longer limited to technology. Today, the company is excited to announce its rebrand as Strategy. For the following reasons: one, simplicity.

Strategy is a single word, easy to remember, and has 40% fewer letters than MicroStrategy; Continuity, since Strategy is a second half of MicroStrategy's historical brand name, it would represent an evolution but not a complete change or break from our past; and three, ambition. The new name would also reflect our ambition to keep pushing boundaries. For example, we are no longer confined to the past. But we're focused on the big picture driving new innovations and digital capital and business intelligence.

So, today, Strategy is the world's first and largest Bitcoin treasury company. The largest independent publicly traded business intelligence company and also a NASDAQ 100 stock. The brand simplification is a natural evolution of the company, reflecting our focus and broad appeal. The new logo includes a stylized B signifying the company's Bitcoin strategy and our unique position as a Bitcoin treasury company.

And our new brand's primary color is now Orange, which represents energy, intelligence and Bitcoin. Alongside our rebranding, we're starting to launch the official strategy merchandise store. A reflection of our commitment to our passionate retail shareholders who take pride in being part of our journey. Just as sports fans probably represent the favorite teams, our shareholders and employees and customers want to showcase their support for Bitcoin and for us.

Our store will feature curated collection of Strategy apparel and accessories and year designed for those who share our vision. You can now visit the store at store.strategy.com. We welcome your feedback and look forward to seeing our community represent Strategy with pride. Next, I'm also excited to share that we launched a new website, strategy.com.

As you can see on this slide, it includes a live tracker of various metrics and market data, including share price, performance, market cap Bitcoin count, trading volume, options open, interest and more. We believe such a disclosure will provide more transparency and consistency and real-time information to our investors and stakeholders. Investors can see both real-time data and historical information such as past Bitcoin purchases in one simple, accessible place. We have many investors and analysts aggregating this information on their own, and we thank them for their fastidious work.

Now we can provide this information trusted and governed all in one place. Finally, we've relaunched our software website, too, strategysoftware.com. We continue to be at the forefront of innovation and AI-powered business intelligence. We're also progressing rapidly with our cloud transition with a truly cloud-native open multi-cloud approach.

These are highlighted at our new software website. To celebrate our new brand, learn more about our innovations in AI, cloud and business intelligence, spend time with our software customers and meet folks on the forefront of Bitcoin for corporations. I invite you all to join us in Strategy World 2025 in Orlando, Florida. Go to our websites to register for this event, and I look forward to seeing many of you in Orlando.

And if a brand launch was not enough, many know we've had a very busy quarter since our last earnings call. Here are some highlights. One, we continue to see momentum in migrating existing customers and adding new prospects to our managed cloud platform. In Q4 2024, we saw a 50% year-over-year increase in current subscription billings and a 48% year-over-year increase in subscription services revenues.

Second, we've adopted FASB's fair value accounting standard for our Bitcoin holdings, and this accounting change will be reflected in our Q1 2025 financials. This will lead to a large onetime cumulative effect net increase to the opening balance of our retained earnings of $12.75 billion in Q1 as our Bitcoin holdings will be revalued from the current carrying value to the market values. We are proud to have contributed to the corporate initiative advocating for the revision of prior reporting standards that categorize Bitcoin as an indefinite-lived intangible asset. Three, in December 2024, Strategy was officially included in the NASDAQ 100 Index.

As a result, investors in QQQ and other NASDAQ 100 index funds will receive exposure to our Bitcoin strategy. According to some estimates, ETFs tracking the NASDAQ 100 have more than $550 billion in assets under management. We view this as an important milestone in the institutional adoption of Bitcoin and we're proud to be part of the NASDAQ 100. In December, we welcomed three new members to our board of directors, Brian Brooks, Jane Dietze, and Gregg Winiarski.

This expansion increases our board from six to nine members and reinforces our commitment to the highest standards of corporate governance. Each of these distinguished leaders brings a wealth of invaluable experience and expertise in digital assets, capital markets, and regulatory matters. And we believe they will make significant contributions to our strategy as a Bitcoin treasury company, further strengthening our strategic vision and oversight. Lastly, we conducted a special shareholder meeting in January, where our shareholders voted to increase the authorized Class A common stock to 10.33 billion shares and preferred stock to 1.005 billion shares, respectively.

The expanded share count will support the execution of Strategy to raise capital opportunistically and effectively through both equity and fixed income securities to purchase Bitcoin in a manner that we believe is advantageous and accretive to our shareholders under the prevailing market conditions. Moving on to the Bitcoin highlights for 2024. Strategy remains the largest corporate holder of Bitcoin in the world. Now, holding 471,107 Bitcoins with a total Bitcoin market value of $46 billion as of February 2nd.

In the full year 2024, we acquired an additional 258,320 Bitcoin for a total purchase cost of $22.1 billion at an average price of $85,447. In 2024, the price of Bitcoin appreciated spurred notably by the approval of spot Bitcoin exchange traded products or ETPs. Additionally, the Pro-crypto stance of the new administration led by president Trump has drawn considerable institutional attention to the asset class. We believe the introduction and initial success of the spot at Bitcoin ETPs evidenced the growing maturation of Bitcoin as an institution-grade asset class, with broader regulatory recognition and institutional adoption.

On the capital markets front. We made significant progress toward the advancement of our Bitcoin strategy. We announced our 21/21 plan in the Q3 earnings call in November to target raising $21 billion of equity and $21 billion from fixed income securities between 2025 and 2027. We have made progress under our 21/21 plan, much faster than originally anticipated, with rapid and responsible growth in our capital raising given favorable market dynamics.

In the full year 2024 and quarter to date in Q1 2025, we raised $18.8 billion net proceeds through our at-the-market or ATM equity offering program, and raised $6.2 billion through the issuance of five different tranches of convertible notes. This makes Strategy the largest issuer of convertible bonds in a single calendar year in the last decade. We also raised $584 million gross proceeds by issuing Strike, a preferred perpetual stock. Last week after filing a shelf registration.

We expect to continue issuing innovative fixed income securities and seek to enable our common stock to outperform Bitcoin via intelligent leverage to manage our overall leverage intelligently and maintain a healthy and robust balance sheet. We redeemed our $500 million senior secured notes due 2028 and called our $650 million convertible notes due 2025 and $1.05 billion convertible notes due 2027. All of our Bitcoin serving as collateral securing our 2028 senior secured notes was released. As illustrated on this slide, our new capital structure includes the issuance of convertible preferred equity for investors seeking lower volatile and leverage.

We believe that our new perpetual Strike Preferred Stock or STRK, is a complementary addition to our convertible bonds and any future fixed debt instruments we might have. Strategy's unique position allowed us to introduce Strike, which is a form of convertible preferred stock with an embedded perpetual call option on MicroStrategy, our common stock. There's substantial exposure to Bitcoin. It's important to note that Bitcoin itself is one of the most volatile and historically high-performing commodities available.

We created a preferred security convertible into highly liquid equity which, in turn, is issued by a company that holds significant amounts of Bitcoin, a volatile and liquid commodity. To our knowledge, Strike is the first preferred equity or convertible preferred equity issued by a company with significant Bitcoin exposure. Its ticker symbol, STRK is the second publicly traded ticker for strategy. While Strategy aims to issue leveraged equity through which our investors gain exposure to Bitcoin.

STRK, Strike offers an 8% fixed coupon and a perpetual uncapped call option in a publicly traded security. This overall capital structure is quite unique and designed to broaden our investor base. The primary objective of introducing Strike was to access an investor base that is interested in investing in securities with exposure to Bitcoin, but they want lower sensitivity to Bitcoin's volatility in performance, both on the upside and downside. We recognize that those investing in MSTR Class A common stock typically seek higher volatility and leverage, but we also saw an opportunity to attract a new class of investors interested in reduced volatility and leverage, still wanting bitcoin exposure.

As reflected in the snapshot of our capital markets activity, 2024 was a milestone year for Strategy with over $22 billion raised to fuel our Bitcoin strategy. The pace of our capital raising and Bitcoin acquisition significantly accelerated in Q4 2024, during which we raised $15 billion through equity issuances and $3 billion via convertible debt, in just under two months. To put the scale of last quarter's activities in perspective, prior to last quarter, we had raised $10 billion over 17 quarters since adopting Bitcoin as our treasury reserve asset in August 2020. This remarkable ramp-up is not only a testament to Bitcoin's broader adoption and price appreciation but also to support our diverse investor base, who recognize our ability to execute our Bitcoin strategy with laser focus.

Andrew will provide further details on our capital markets and Bitcoin purchase activity. Last quarter, we developed a new descriptor for what we are, which is the world's first and largest Bitcoin Treasury Company. The acronym being coincidentally BTC. We continue to focus on acquiring more Bitcoin through our capital market activities, and we believe that the value proposition of the company set around centers increasingly on our Bitcoin treasury strategy.

We're a publicly traded company that has adopted Bitcoin as our primary treasury reserve asset. By using proceeds from equity and debt financings, as well as cash flows from our operations, we strategically accumulate Bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to Bitcoin by offering a range of securities, including equity and fixed income instruments. In addition, we provide industry-leading AI-powered enterprise analytics software, advancing our vision of intelligence everywhere.

We leverage our development capabilities to explore innovation in Bitcoin applications and integrating analytics experience with our commitment to digital asset growth. We believe our combination of operational excellence, our strategic Bitcoin reserve and our focus on technological innovation positions as a leader in both the digital asset and enterprise analytic sectors, offering a unique opportunity for long-term value creation. Since our adoption of our Bitcoin strategy, we used three primary mechanisms to acquire more Bitcoin. One, fixed income securities.

We've issued $8.6 billion of total debt, of which $6.2 billion in principal amount of convertible debt is outstanding and an attractive blended cost of debt fixed at 0.56% annually. We also raised $584 million in gross proceeds through perpetual preferred stock, and we will continue seeking to innovate with other fixed income securities offerings. Common stock issuances. We have issued $21.7 billion in shares of Class A common stock in a manner that we believe to be accretive to existing shareholders and cash flow from operations.

Since August 2020, we've used $836 million of total cash generated by our software operations to purchase Bitcoin. These three capital market levers have allowed us to raise $31 billion of capital and deploy intelligent leverage to increase our Bitcoin holdings in a manner that we believe has created tremendous shareholder value. Last quarter, we introduced our 21/21 capital raising plan, targeting $42 billion in capital. Split equally between equity and fixed income over three years.

Since then, supportive macro conditions led us to accelerate the execution of our capital raising plan. We've already raised 80% of our $21 billion equity target and 17% of our fixed income target while accumulating significant Bitcoin holdings. In 2025, we are shifting our focus more into fixed income issuance, including convertible notes, preferred stock and other securities designed to provide leverage that benefits our shareholders. As mentioned in the past, our long-term leverage target is 20% to 30% of our Bitcoin holding value.

We remain flexible, and we'll continue to adapt swiftly to market conditions. Now I'll turn the call over to Andrew to discuss our financials for the quarter in further detail.

Andrew Kang -- Senior Executive Vice President, Chief Financial Officer

Thank you, Phong. I'll begin with a review of the software results, then go into further detail on Bitcoin's strategy and those results. On Slide 16, you can see in Q4, total software revenues were approximately $121 million, down 3% year over year. Full year 2024 total revenues were approximately $464 million, down 7% year over year.

We fully anticipated product license revenues along with support revenues to decrease in Q4 and our revenue trend continues to reflect the ongoing successful transition of our software business from on-premise to cloud. Turning to the Cloud results. Q4 subscription services revenues increased 48% year over year and now make up approximately 20% of total revenues. Full year 2024 subscription services revenues were approximately $106.7 million reflecting an increase of 32% year over year.

The growth in subscription services revenues is a result of the growth in our subscription billings, which also grew by 57% in Q4 to approximately $65 million, our fourth straight year of quarterly double-digit growth. The strong growth in our subs billings was again driven by both existing customer migrations to the cloud, as well as new customer wins in Q4, and our customer renewal rates continue to remain elevated, consistent with prior quarters. We continue to see growth in demand for our cloud platform and Q4 was the strongest quarter of customer migrations to Cloud to date. The decrease in product license revenues and support revenues will be offset by growth in subscription services revenues.

We expect this trend will continue in 2025 in the short term, but in the long run, cloud subscription services revenues should offset this shift as we fully transition our business to the Cloud. Cost of revenues were approximately $34 million, up 21% compared to Q4 of last year and approximately $130 million for the full year, up 18% year over year. The increase was driven primarily by higher Cloud hosting costs, which we expect to continue in future periods as a direct result of our growing Cloud business. Operating expenses for the software business were approximately $94 million, down 6% compared to Q4 of last year, and full year opex was approximately $396 million, which was up 2% year over year.

And lastly, digital asset impairment charges in Q4 were approximately $1 billion and approximately $1.8 billion for the full year. I'm happy to announce that Q4 will be the last quarter where we will recognize an impairment charge on our Bitcoin holdings as we move to fair value accounting in Q1. Now turning to our Bitcoin strategy. Q4 was the most successful quarter of adding Bitcoin on our balance sheet since the adoption of our Bitcoin strategic reserve.

We acquired 218,887 Bitcoins from the beginning of the fourth quarter until now for approximately $20.5 billion at an average price of $93,600 per Bitcoin. As of January 24th, the company held a total of 471,107 Bitcoins acquired for an aggregate cost of $30.4 billion or approximately $64,511 per Bitcoin. Strategy has added Bitcoin to our balance sheet in every single quarter since August 2020 across 50-plus announcements and 100% of our Bitcoin holdings remain fully unencumbered. As of February 2nd, 2025, the market value of our Bitcoin holdings was $46.1 billion purchased at an aggregate cost of $30.4 billion and an average Bitcoin purchase price of $64,511.

Beginning with our Q1 2025 reported results, we will reflect the impact of the new FASB fair value accounting rule for our Bitcoin holdings as part of net income. As a result of the change in accounting rule on January 1st, 2025, we recognized a positive cumulative adjustment to the opening balance of our retained earnings of approximately $12.7 billion, which was in large part due to the significant difference between the higher market value of our Bitcoin compared to the carrying value of the Bitcoin on our balance sheet as of December 31st. We will remeasure the fair value of our Bitcoin holdings on the last day of the first quarter and any difference in the price of Bitcoin at the end of the first quarter compared to the ending price on December 31st will be recognized as income or loss as part of our GAAP reported net income. Since establishing the record $21 billion common equity ATM program on October 30th of last year, which was in fact, the largest in capital markets history, we have issued new shares swiftly yet extremely prudently while adapting to the strong market conditions.

This chart illustrates the weekly breakdown for the average daily shares issued via our ATM compared to the overall average daily trading volume for each of those weeks. You'll note that while we have sold $16.7 billion of common equity since announcing our new ATM program, that activity accounted for only a very modest 2.9% of the total average daily trading volume of MSTR for the entire period. We continuously monitor Bitcoin price, MSTR share price, as well as overall trading volumes in a programmatic and disciplined manner to sell shares through our ATM and execute sales in a manner we believe that does not impact the overall market price at MSTR. Now turning to our treasury operations.

We had one of our most impactful quarters from a capital markets execution perspective. In Q4, we issued a new $3 billion convertible note in November which was upsized and well received by the market. The notes due December 2029 had a 0% coupon and 55% conversion premium reflecting a conversion price of approximately $672 per share. As in the past, the net proceeds from the new convert were used to acquire additional Bitcoin.

In Q1, we called for the redemption of our $1.05 billion 2027 convertible notes. As note, we're substantially in the money, we expect most holders will elect to convert their notes into shares of our Class A common stock on or prior to the redemption date. We believe this creates capacity for additional intelligent leverage for our balance sheet in the form of new fixed income instruments. After the redemption of our 2027 convertible notes, our nearest debt maturity is now more than three years away and not until late 2028.

And the remainder of our scheduled debt maturities are evenly spread over several years out to 2032, with a weighted average scheduled debt maturity of approximately five years. Under our current capital structure, we now have $6.2 billion of unsecured convertible debt outstanding with a blended interest rate of approximately 0.56% with staggered stated maturities beginning in December of 2028 through June 2032. Last quarter, we filed a $21 billion equity at the Market program, which was the single largest ATM program ever filed in the U.S. As of February 2nd, we issued $16.7 billion of common equity under this program and approximately $4.3 billion of capacity remains available under the shelf.

This slide outlines the key terms of Strike, our new newly issued perpetual convertible preferred stock. We successfully raised $584 million in gross proceeds through the issuance of 7.3 million shares at an offering price of $80 per share. We expect that the security will be listed on NASDAQ under the ticker STRK beginning on February 6th. Looking ahead, we have the flexibility to explore an ATM shelf registration for issuing additional Strike shares, similar to our common stock ATM program.

Strike represents the next step in the evolution of our capital structure, expanding the range of investment opportunities for investors with varying risk profiles, and it complements our equity and existing convertible bonds offering exposure to Bitcoin through MSTR with lower volatility and leverage. We continue to maintain significant debt coverage with $47 billion in Bitcoin holdings against just $3 billion in out-of-the-money convertible debt or approximately 15 times coverage. We have been asked how we evaluate our leverage targets? We measure leverage risk not against our Bitcoin cost basis, but rather our debt coverage ratio, which remains exceptionally strong. Our current leverage ratio remains below our long-term target range of 20% to 30%, which we provide capacity to expand our capital structure prudently and based on market conditions.

In 2025, our focus will be on opportunities to raise additional fixed income securities while preserving flexibility to raise equity and maintaining a healthy debt coverage ratio. Similarly, we believe we have substantial coverage to meet the dividend obligations for our Strike shareholders. The 8% fixed dividend on 7.3 million Strike shares results in an annual cash need of approximately $58 million. Even its netting out the $3 billion in out-of-the-money converts, our Bitcoin holdings leaves us with $44 billion of coverage, more than enough to cover Strike dividends if needed.

This slide illustrates our approach to Intelligent Leverage and the mechanisms available to increase or decrease it. Our outstanding debt and preferred stock together account for approximately 8% of our market cap and approximately 15% of our Bitcoin asset value. Currently, we are below our long-term leverage target of 20% to 30%, and we believe we have capacity to lever up by issuing new convertible debt or fixed income securities. Conversely, deleveraging can occur through debt repayment or conversion to equity, issuing common equity, as well as a Bitcoin price appreciates, which naturally lowers leverage as the market value of our holdings increase.

Our leverage ratio declined in Q4 2024 and quarter to date in Q1 2025 due to the combination of these deleveraging factors, as we strategically increased our leverage ratio in 2025, we expect enhanced benefits for common shareholders through a higher BTC yield and elevated volatility, both of which drive long-term value. Today, we are introducing two new KPIs, BTC gain and BTC dollar gain. BTC gain is defined as the number of Bitcoins held by the company at the beginning of a period multiplied by the BTC yield for the same period. This metric quantifies in Bitcoin terms, our BTC yield for the quarter.

For the full year 2024, our BTC gain was 140,538 Bitcoins calculated by multiplying the 74.3% BTC yield to our starting balance of 189,150 Bitcoin. Taking the year-end Bitcoin price at $93,400, our BTC dollar gain for 2024 will be calculated as $13.1 billion. It is worth noting that the BTC gain and BTC dollar gain metrics are not gains in the traditional financial context. They are also not measures of return on investment or measures of income generated by our treasury operations or Bitcoin holdings, and BTC dollar gain does not represent the fair value gain on our Bitcoin holdings.

Our BTC yield in 2024 of 74.3% surpassed the annual BTC yield in all of the previous years, as well as our initial target of 6% to 10% this year. We can't predict the price of Bitcoin nor can we predict broader equity and debt capital market conditions. However, we are confident that our Bitcoin treasury strategy will continue to generate value and are revising our targets for 2025 to achieve a minimum of 15% BTC yield and a $10 billion BTC dollar gain for 2025. We will continue to consider the full spectrum of financing options and explore accretive capital markets transactions and untapped pools of capital to execute this strategy effectively and prudently.

We plan to remain disciplined in the use of both the ATM and other capital-raising alternatives, doing so in a way to achieve our BTC yield and BTC dollar gain targets. Thank you again for your time today and for your continued support of strategy. I'll now turn the call over to Michael for his remarks.

Michael J. Saylor -- Chair, President, and Chief Executive Officer

Thank you. I appreciate the opportunity to address you all today. I'd like to talk about development so far. Why don't we start with the last 12 months in the Bitcoin marketplace, I think starting from January of 2024, with the approval of the spot Bitcoin ETFs, we had an excellent year of institutional adoption.

I would say Wall Street adoption of those ETFs has been extraordinary. There's now something on the range of $140 billion of capital that's flowed into spot Bitcoin ETFs around the world. We saw this transition of fair value accounting in 2024. We've got a bitcoin president.

We've got a pro-Bitcoin cabinet. We've seen an end to the war on Crypto. We've got 250-plus pro crypto legislators in Congress. We've seen the repeal of SAB-121, which an effect of preventing banks from being able to consider banking Bitcoin.

We've got a lot of enthusiasm around the Strategic Bitcoin Reserve Act. And we've seen a dramatic increase in Bitcoin standard companies, companies like MARA, like Riot, like Semler, like Metaplanet, like Kohler are all beginning to adopt Bitcoin as a treasury reserve asset. And there's just been a consistent increase in Bitcoin awareness throughout mainstream media and throughout the traditional investor community over the last 12 months. Next slide.

I want to say a few words about our strategy rebrand. We have become a global brand. People recognize Strategy in South America, in Europe and Asia, all across the world, all across the U.S. And so, this is a very logical development.

Strategy is easier to say, easier to spell, easier to find, easier to remember. I've been 30 years in the business, and I can't tell you how many times I've heard someone refer to MicroStrategys and get the plural wrong, and spell it wrong. And I think that this particular instantiation and elegant evolution of our brand is going to allow us to reach a much broader group of customers, investors and partners. And I also think it ties our identity much more closely to Bitcoin and all of the positive aspects of the Bitcoin network in the world.

And so, I think this is going to be very, very helpful for us in communication. Next slide. Our performance is driven by Bitcoin. And as you can see, since we adopted Bitcoin as our primary treasury reserve asset, we've been able to generate annualized performance of approximately 110% a year which is really extraordinary in the history of the capital markets.

Over that time period, bonds are minus 5%. Gold and real estate between 6% and 8% ARR. The hurdle rate really is the S&P Index, which is about 14%. And if you want to beat it, you pick the top seven companies, the Magnificent Seven, you can almost double it.

You can get 29%. Bitcoin has outperformed that by a factor of two. And of course, we've been able to outperform Bitcoin by intelligently leveraging Bitcoin. Next, this slide just illustrates that one of the results is that MicroStrategy has outperformed every stock in the S&P 500.

So, this is as of February 4th, yesterday, my birthday. It's a nice birthday present. We continually benchmark ourselves against every company in the S&P 500 every single day, and we're always considering this. But as you can see, it's not close.

We're dramatically outperforming the strategy of every other company in the S&P 500 with our Bitcoin strategy. Next slide. Here, you can see, at the end of the day, if you just bought Bitcoin, you would outperform 99% of the S&P 500. So, Bitcoin as pure digital capital is a very, very compelling investment idea.

The Magnificent Seven is outperforming 94% of the S&P 500, and of course, the Index is outperforming 62%. And the message here really is many, many companies are struggling to outperform the Index, and it's time to consider a Bitcoin strategy. Next, well, as you know, the secret, of course, to that strategy isn't just performance. It's also the volatility.

Volatility is a measure of energy. And as you can see, Strategy is the most volatile stock out of the S&P 500 universe. So, we don't hide from it. We're quite proud of it.

We engineer the business in order to stay volatile. Conventional wisdom is to strip volatility from a publicly traded company, strip it from the balance sheet, strip it from the P&L. MicroStrategy has embraced volatility. And not only do we pursue it with Bitcoin, but we pursue it with our leveraged strategies to actually get a volatility that's greater than the native Bitcoin volatility.

There is a result of that volatility. And the result is liquidity and optionality. As you can see here, we have the largest open options interest of any company in the S&P 500 universe as a measure of market cap. And you can see we're number two in liquidity as a measure of our divided by market cap.

So, we've established a fairly intense capital structure. It's fast money, it's hot money. And it's that way by design next. One of the results is we have the largest, deepest options pool in the Bitcoin universe.

And you can see that our options are trading by a factor of more than five versus EBIT. And we'll continue to pursue this strategy, we think this gives us an advantage. Next that optionality and that volatility, of course, is a benefit in the convertible bond market. You can see here the blended performance of our convertible bonds is 75% versus Bitcoin's performance of 64% during the same time frame.

So, our convertible bonds are unique. If you wanted to get Bitcoin exposure, but you wanted to get the credit assurances of a bond and/or the volatility characteristics of a bond MicroStrategy is unique. We were the largest convertible bond issuer in 2024. We think we have an advantage in this market because we have one of the great use of proceeds for a convertible bond if you're going to issue a convertible bond, you want high volatility in order to issue the bond, but you want to take the use of proceeds and reinvest it in a high-volatility asset, which is what Bitcoin is.

And so, by issuing a bond and issuing very volatile securities and then buying back a volatile commodity we're able to maintain a scalable business and continue to go back to the market over and over again. Next, and so on the margin, you can see MicroStrategy is outperforming all major assets, all major asset classes and the S&P. And we're so enthusiastic about this. We've decided that we would go ahead and memorialize this and create a strategy.com website.

And if you go to our strategy.com website, you'll see you're able to actually track MicroStrategy's performance against the Magnificent Seven, against these asset classes every single day in real time. And so, our goal is to help educate the investment community, so they actually understand both the characteristics of Bitcoin and the characteristics of MicroStrategy versus all the other investment options in that investment universe. Next, you'll see on the strategy.com website, a dashboard, and you'll see all sorts of interesting KPIs that are being maintained in real time. What you can see here is a snapshot is we've got an annualized return of 110% over the year versus 59% for Bitcoin.

You can see our options market is 5.6x as biggest, the next largest Bitcoin options market. We will continue to track metrics that aren't always easy for people to get like daily trading volume or daily trading volume as a percentage of market cap, or give you every single day real-time performance of our convertible bonds versus Bitcoin and our implied volatilities and our historic volatilities, and so I'm really enthusiastic to see what people think of this. The website, it's kind of tailor-made in another way, which is you can very easily snapshot the website and you can create graphics and snapshot them and share them and or use them in your analysis. And we think this is kind of a first.

I'm not really aware of another public operating company that published live website with so many different interesting investment analytics looking at the universe of investment assets. Next, looking forward to 2025, there's a set of catalysts that I think are bullish. I think all of the focus on constructing a digital assets framework that's taking place at the SEC and in the Senate and in the House and within the administration, I think this is a great thing for Bitcoin and the entire crypto asset class in general. I think there'll be a lot of enhancements to Bitcoin ETFs.

The in-kind create redemptions, I think you'll see a deeper, richer options market for a lot more spot ETFs. I think you'll see other ETFs coming along that give people the ability to take on different types of Bitcoin exposure. I think all of those are good things for the asset. I think you'll see a continued move toward more banking support for Bitcoin, the repeal of SAB-121 opened that door, but I think we'll see more and more support from a supportive set of regulators.

And as the banks start to take a fresh look at supporting Bitcoin, it's going to be good for the asset class. We'll continue to see more corporate adoption of Bitcoin every month. We hear about another company that's adopting Bitcoin as a treasury asset. And of course, the existing companies like Metaplanet, similar like MARA are intensifying, their bitcoin acquisitions and their Bitcoin financing and capital markets-related activities.

This is only going to be good for Bitcoin, the network and Bitcoin the asset class. We also see good signs of institutional adoption. It's becoming more normal. We're seeing people talk about 1% to 3% allocations of a portfolio to Bitcoin.

We're seeing Bitcoin pop up as an agenda item in more and more mainstream investor conferences. I'm being invited to lots and lots of mainstream investor conferences. And one year ago, two years ago, this wasn't so common, but what's clear is that Bitcoin is on the radar of global investors and mainstream institutional investors and everyone's starting to think they need to form an opinion. They need to get up to speed on this, and they need to figure out what their strategy is going to be.

So, Bitcoin global adoption is accelerating. The events of November 5th created a supportive political regime in the United States. But the regulators in Europe in Singapore, in the Middle East, in South America, even in Hong Kong and China, they all look to the regulators in Washington D.C. to take their cue.

And so, there's a wave of political support, which is spreading around the globe for Bitcoin. All of these things are going to be positive catalysts for awareness, adoption, investment in the coming 12 months. Next. Source Strategy, with regard to MSTR, we want that to be the high leverage, high volatility equity in the Bitcoin ecosystem.

And we will continue to pursue intelligent leverage via our convertible bond strategies via our preferred stock strategies via opportunistic capital markets strategies in order to generate that leverage and that performance for the Bitcoin maxi investors. Our convertible debt strategy will continue. We will, as we have done, selectively refinance various debt instruments when they're no longer providing effective leverage for our common stock shareholders and when they're no longer interesting for the convertible debt investors, we'll replace them with new issuance of convertible debt. And we think there's a lot of opportunity for us to refinance our existing convertible debt and to expand our convertible debt structure in order to create intelligent leverage.

We've got a very good partnership with a convertible bond market, and we look forward to continuing it with them. The third area, Strike is the convertible preferred stock market. There are people that want large fixed income, large dividends, and so Strike is an 8% dividend yield. They wouldn't get that need met by a convertible bond.

And so, this draws in those that are interested in that income. If you want to deploy an instrument that generated consistent income into a retirement account or into a tax-deferred account then this is something very interesting. There's a large pool of investors that have fixed income funds and the need to invest in fixed income instruments. There are other investors that are invested in preferred stocks.

There are other investors that are interested in Bitcoin upside, but they would like some principal or downside protection. And there are some that -- if we look at volatility, Bitcoin is a 50- to 60-vol asset, and MicroStrategy is targeting higher 80- or 90- vol. And on the other hand, there's a large pool of investors that invest in QQQ and SPY and they're around 15-vol, 15 to 20 vol. And so, between 15 vol and 60-vol, that's a big, big area where if you can create an instrument that has more volatility than, say, a typical preferred stock or a typical diversified portfolio of high-yield bonds, then that's going to appeal to a new class of investors.

There are a lot of investors that kind of want that kind of volatility. They may not want the extreme leverage of MicroStrategy. They might not even want the raw unvarnished volatility of an IBIT or BTC, but Strike appeals to a new group, a different return profile, a different volatility profile. And yet Strike is very special because it's a perpetual dividend, right? Like it will continue.

We're not going to call it, right? So, the idea of a perpetual dividend is very interesting. And the other thing is it's a perpetual call option or perpetual conversion option. So, for very long-range investors that are either looking for perpetual dividend right or the perpetual conversion rate. This is just a totally new part of the market.

We're enthusiastic to see what happens. It creates tremendous optionality for us. And of course, at the bottom of this chart, you can imagine we have not issued a fixed coupon instrument recently. We did have a fixed bond, the '28 note was a fixed coupon corporate bond, but we repaid that.

But looking forward, we think that there's probably a spot in our capital structure where we could just issue a fixed coupon type preferred without a conversion right, and that would be even a fourth class of investors. So, we will continue to be very thoughtful and strategic about this. I mean, sometimes people wonder, they're like "Well, why do you choose to issue equity instead of a convert?" Well, if we don't like the premium that the equity is fetching, we don't issue much. And if we like the premium, we like the liquidity, we would issue more.

So, if we stop issuing for some reason, probably the reason is we just don't think it's that accretive for our shareholders. And at any given time, whether or not the best thing for the shareholders is equity issuance or convertible debt issuance or preferred stock issuance or repayment or refinancing. It's really a function of the capital markets, and it's a function of all of the intelligent leverage ratios and the BTC yield that we can generate -- the BTC gain that we can generate for a certain amount of capital we might raise, and we have very sophisticated models. We calculate this every minute of the day, right, not every day, every minute of the day, sometimes every second of the day.

So, we're very thoughtful, and we're very considerate about this. And I think the most important thing for us is we keep our options open, and we develop a variety of different options for capital raising. Our view is that Strike is actually accretive. It is a benefit to Bitcoin.

It's a benefit to MSTR. It's a benefit to the convertible bonds and it's a benefit to Strike shareholders themselves. So, think of a quad reflective-type strategy everything we're doing is with the thought of the impact on every other part of the capital structure and the entire Bitcoin ecosystem. And we will continue to be very thoughtful in how we pursue this.

Next, A snapshot of our capital structure. As of yesterday, we had a bit more than $100 billion in equity market cap and so we've got a $94 billion equity market cushion over our fixed income liabilities. And of course, you could see about a $39 billion Bitcoin cushion over our fixed income liabilities. So, we've got a very strong capital structure.

We've led with equity in order to create a very, very strong question, but that puts us in a great position to lever up, and to continue to raise capital and take a leadership role in this marketplace. Next. A few words about BTC yield and BTC gain. First of all, we had a target of 6% to 10% for BTC yield.

At this point, we believe for the 2025 calendar year we can set that target to 15%. So, we're adjusting the target up. And what is BTC yield, right? BTC yield is our accretion of Bitcoin per share. If we were a spot ETF, there would be no BTC.

If we were to sell equity at the net asset value at a 0% premium to the underlying Bitcoin, there would be no BTC yield. If we were to sell equity at a discount to our net asset value, there will be a negative BTC yield. So, when we're generating BTC yield, it's because we're engaged in what we believe are accretive capital markets transactions. If we're selling the equity at 150% premium to the underlying assets, it's a much larger yield.

If it's a 250% premium it would be even larger on a given capital basis. As a general rule, the fixed income instruments have a much higher premium to underlying assets than does the straight equity. And so, if we're issuing a convertible bond at a high premium, then for a given amount of capital we raise, the BTC would be higher. People wonder what's the significance of BTC yield? Well, if you think of it, t's not the investment gain from just holding the Bitcoin.

If we just hold $50 billion of Bitcoin and it goes up 20% next year. There's a $10 billion type investment gain. That's the same gain that an ETF would have. However, when we issue $20 billion worth of new capital or new securities, and we do it in an effective 100% premium to the underlying assets, half of that is in accretion.

And so that's like a $10 billion BTC gain or it's $10 billion divided by the amount of Bitcoin we have by 50. So, that would look like a 20%-type BTC yield. So, the more intelligently, we operate the treasury operations, and the more accretive way we do that, the higher that BTC yield will be. And so, you could think of BTC yield as a percentage measure of the value that we're creating for the shareholders from intelligent treasury operations.

And people talk about and they wonder about the premium to underlying assets and what's merited? Well, I would say, figure out what multiple you want to put on the business and then take that multiple, multiply it by the BTC yield -- take a multiple, times 15%, and that's actually a reasonable target for the premium that ought to set -- that the company ought to get over and above its underlying assets. If you believe in a 10 multiple, you multiply 10x 15% and have 150% premium. If you had a lower multiple, if you thought we would only do this once and never again, you will multiply one times 15%, say they're going to get a 15% BTC yield once and never again. But of course, that multiple could be anything.

And we leave it to our investors to decide what the multiple should be, but the right way to think about BTC yield is a multiple of BTC yield is the premium that a Bitcoin treasury company should get over and above its underlying Bitcoin assets. Why? Because if we just stopped engaging in treasury operations, if all we did was become a holding company, and we didn't do any more capital raise ever, then we're just watching the Bitcoin go up or go down based upon the underlying Bitcoin performance, which is just like an ETF. And so that's BTC yield for you. Some people have a hard time with that, which is why we've introduced BTC gain.

BTC gain, I think of as the amount of Bitcoin we captured in a non-dilutive fashion. right? If we actually are engaging capital markets activities at a premium, we're selling $100 million worth of equity backed by $50 million of Bitcoin. We captured a $50 million gain, right? That's the way we think of it. If we sold $100 million of equity backed by $100 million of Bitcoin, we'd be capturing a $0 BTC gain.

And if we were stupid enough to sell $100 million of equity backed by $200 million of Bitcoin, we would actually generate $100 million BTC loss. So, obviously, we won't be doing that. But the power of the BTC gain is -- it's a way to quantify the shareholder value creation of the treasury operation in BTC terms every quarter or on a deal-by-deal basis or on a year-by-year basis. And you can see here, our target is to generate $10 billion worth of BTC dollar gains and the 2025 calendar year.

If we didn't engage in treasury operations, that would be zero. If we engage in neutral treasury operations with no accretion, no dilution, that would still be zero. We would expand our capital base, but we wouldn't generate a BTC gain. So, BTC gain is that measure of value creation doesn't go through the P&L.

You won't see it as an investment gain. It really is due to intelligent Bitcoin acquisition activities. But we have introduced this in order to make it easier for our shareholders to understand the business. So, if you're wondering, well, how do I think about the business, I think the Bitcoin treasury operation, if it's able to create $10 billion of BTC gains, it's worth a multiple of that.

And of course, you can put the multiple on the operation, whatever you want. It could be 10, it could be 20, it could be 30, it could be one, it's up to you. But take that multiple multiplied by BTC dollar gain. That's what we think the operation is worth, then you can go ahead and add the Bitcoin treasury to it, and that gets you to a value for the enterprise.

So, with that, we created these two simple ideas. Our target of the management team is to generate $10 billion of BTC gains this year, and our target is to generate 15% BTC yield this year through our treasury operations. And next, I think I would just like to thank everybody for your support. And at this point, I'd like to pass the floor to Shirish for some questions from the audience.

Shirish Jajodia -- MicroStrategy Incorporated

Great. Thank you, Michael. We are going to jump into the questions now. And the first question is for Andrew.

This is about the Strike deal. The question is like congrats on the successful capital raise through Strike convertible preferred. And the question is, could you please elaborate on the flexibility for the strike dividend to be paid out in cash or in common stock? And how do you plan to fund the dividends going forward?

Andrew Kang -- Senior Executive Vice President, Chief Financial Officer

Sure. Thanks for the question. I guess, first off, it's worth just saying again, we believe strike is an extremely accretive tool to raise capital. And yet today, it's just a pretty small part of our tool chest, so to speak, compared to our ATM and our converts.

I guess in terms of meeting the obligations, we will not need to rely solely on cash from operations. we will use all of our capital sources to pay these dividends, including primarily the ATM. I guess, it's worth noting, too, look, we raised over $20 billion in capital, $20 billion in capital since the beginning of Q4, you really need to compare that to the $14-ish million in the quarterly dividend payments for strike. So, it's just our ability to raise capital relative to the obligation on strike is in mix compared to what we need to pay.

So, look, I think we have lots of capacity and lots of flexibility to cover the dividends. And I also think that our ability to raise capital in the future should increase, as well as our market cap continues to increase. So, overall, I think we are very comfortable in our ability to pay these in perpetuity.

Shirish Jajodia -- MicroStrategy Incorporated

Thank you, Andrew. We're actually over the allocated time for this call. So, we will take one final question for Michael, and that is regarding the tax issue. So, what are the company's latest thoughts on the taxes on unrealized capital gains and what steps are being taken to mitigate this risk? And what are the implications if this tax issue becomes effective at some point in the future?

Michael J. Saylor -- Chair, President, and Chief Executive Officer

Good question. We've been in dialogue with the IRS on this matter. And we're also in dialogue with members of the cabinet and with supporters on Capitol Hill and the Senate and the House. We don't think that there's any broad-based support for the idea of an unrealized capital gains tax on crypto assets for large corporate holders, so we don't expect over time that this will come too much.

But having said all that, in the event that there was an unrealized capital gains tax on corporate holders, we see this a second order impact. It shouldn't affect our convertible bond strategy, our fixed income strategy, our equity strategies. It would be a nuisance that it would somewhat slow down our growth rate. But at end of the day, we're arbitraging equity and debt capital markets where the cost of capital is 5% to 15% and the volatilities are 5% to 15% against Bitcoin with performance of 60%, 60-vol.

And so, whether or not we're arbitraging 60 versus 10 or 55 versus 10 or 52 versus 10 doesn't really much change the business strategy might just slightly slow down our growth rate. And we remain confident that we'll manage this issue.

Shirish Jajodia -- MicroStrategy Incorporated

Great. Thank you, Michael. So, thank you, everyone, for your questions. Hopefully, we addressed a lot of those over the course of the call today.

This concludes the Q&A portion of the webinar. We would like to thank the 10,000-plus unique attendees that joined our call live today. And I will now turn the call over to Phong for closing remarks.

Phong Q. Le -- President and Chief Executive Officer

Thank you, Shirish. I want to thank everyone who joined us today. And as always, we really do appreciate all of your support. Hopefully, you're as excited as we are about our enterprise software strategy, our Bitcoin strategy.

and our strategy in general. We look forward to seeing you again in 12 weeks. And hopefully, we'll see a lot of you in Orlando at Strategy World 2025 in early May. Thanks, and have a good evening.

Duration: 0 minutes

Call participants:

Shirish Jajodia -- MicroStrategy Incorporated

Phong Q. Le -- President and Chief Executive Officer

Andrew Kang -- Senior Executive Vice President, Chief Financial Officer

Michael J. Saylor -- Chair, President, and Chief Executive Officer

Michael Saylor -- Chair, President, and Chief Executive Officer

Phong Le -- President and Chief Executive Officer

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