Summary Yesterday, Strategy reported its third quarter earnings. The company missed on revenue but beat widely on EPS, thanks to the Bitcoin rally that took place in the quarter. Crypto-specific valuation methods indicate that BTC (Strategy's main holding) could be worth from $78,000 to hundreds of thousands. If these valuation methods are valid (I personally am ambivalent on the matter), then there's a theoretical floor to MSTR's value. In this article, I explore why I'm upgrading MSTR to a hold after its Q3 earnings. Strategy ( MSTR ) just released its third quarter earnings. The release missed on revenue but widely beat expectations on reported EPS. No adjusted EPS figure is currently available online. Heading into the release, expectations were for Strategy to deliver a strong quarter. Despite the company’s long history of sluggish growth and earnings misses, analysts expected MSTR to reveal significant revenue growth and positive earnings per share [EPS] , both reported and normalized. In the end, the company more than delivered the GAAP EPS expected but missed on revenue. The earnings beat might look like a positive, but as I'll show in a later section, it was entirely attributable to how Strategy accounts for investments. The revenue number Strategy put out in its Q3 release was in line with the historical norms. As you can see in the tables below, Strategy's normalized earnings are usually negative and its revenues have been stagnating for many quarters. The revenue figure shouldn't have been surprising, but it was behind the expectation, leading MSTR stock to sell off massively after the release came out. The EPS beat was likely taken as a non-recurring or "one off" factor. MSTR normalized earnings trend (Seeking Alpha Quant) MSTR revenue by quarter (Seeking Alpha Quant) Here's what analysts expected from MSTR's release before it came out: Expected revenue: $128.98 million. The company missed $125.4 million in revenue. Expected earnings: The reported EPS figure was positive, and ahead of estimates. Bitcoin made a 38% price increase in the third quarter, and since Strategy's value is mostly in its Bitcoin holdings, that caused the company's third quarter earnings to surge (see the Bitcoin ( BTC-USD ) chart below). Bitcoin's 38% Q3 rally (Seeking Alpha Quant) For the reasons above, I expected Strategy’s third quarter release to miss on revenue, and was not surprised that it did. I was a little surprised about the reported EPS beat, as the estimate analysts had set before the release came out seemed to already factor in the large gain Bitcoin had made in the quarter. More on that in a minute. Strategy is a stock that I have had a pretty successful run with on Seeking Alpha. I’ve always rated the stock a sell or strong sell, and all but one of my MSTR ratings have been profitable! Today, I continue to be slightly skeptical about MSTR. However, my conviction in MSTR stock going continually lower over time has diminished slightly. After earnings, MSTR stock fell 5.75% post-market, "pricing in" most of the damage that I had expected. MSTR price action (Seeking Alpha Quant) Also, despite its operating weakness, Strategy does hold a large amount of Bitcoin, whose fair value may be substantial. I am not an extreme Bitcoin bear who thinks that BTC is going to zero: I think BTC is overrated and that investing in it is a kind of “coin flip,” but I don’t think it is worthless. It has some utility beyond speculation, especially for political dissidents removed from the formal banking system. Its advantages in this respect are not easy to replicate by other cryptocurrencies, which usually have some level of centralized control. So I think that BTC has some fair value–though not a discernible amount of it. For this reason I conclude that there are limits to MSTR’s downside risk. When I last covered MSTR stock, I rated it a strong sell on the grounds that its operating business was a liability rather than an asset. The rating worked out very well, preceding a period in which MSTR stock fell 15% and underperformed the S&P 500 by 18%. Today, I still think that MSTR’s operating business is a liability. However, the stock has already sold off by significant percentages, and my previous analysis hadn't accounted for MSTR's Bitcoin holdings. Accordingly, I’m upgrading my MSTR rating to hold. I will elaborate on this rating change in the subsequent paragraphs. Earnings Since this article is primarily an earnings reaction, it makes sense to start with the earnings, then move on to the long term factors associated with Strategy's BTC holdings. Highlight metrics from Strategy's Q3 releases included: $125.4 million in operating revenue, down 4%. $19.12 billion in operating income, up 1700%. $19.53B in net income, up 1,673%. $44.75 in diluted EPS, up 431% 848,517 Bitcoin, up 26% year-to-date. A -3.7% year-to-date [YTD] Bitcoin yield. Before going any further, I should explain why Strategy's profit metrics all vastly overshot its revenue. This might look like a red flag at first glance, so it merits explanation. In the image below, you can see that Strategy's "other long-term assets" absolutely dwarf its cash position, current assets and PPE. That's because "other long term assets" includes MSTR's Bitcoin holdings. All the PPE attributable to this company's entire operation business, is only 0.17% of the value of its Bitcoin! So, MSTR really is largely a BTC proxy--all the company's PPE combined, barely registers in the grand scheme of things. MSTR assets (Seeking Alpha Quant) MSTR cash (Seeking Alpha Quant) Put differently, 99% of Strategy is a massive store of Bitcoin holdings. The company has an operating business, but that business is tiny in comparison to the BTC on MSTR's balance sheet. Nevertheless, Strategy's operating business merits a brief mention. Strategy operates a cloud-based AI/data analytics software consultancy. Many inputs relating to running businesses of this type have been getting more costly lately. First, the keyword “ artificial intelligence ” is seeing rapidly rising search interest, which likely indicates a rising average cost of marketing AI services. Second, the cost of hiring AI-adept engineers is rising modestly . We can see some evidence of these factors' impact in Strategy's recent earnings release. First off, the operating segment's revenues declined 2.5% . This indicates that demand for the operating business's services is not growing. Second, all of the categories of SG&A (including sales and marketing), swelled in Q3. This indicates that the revenue decline observed in Q3, occurred despite increased spending on the things supposed to generate revenue. The only positive category was "gain/loss on digital assets" (more on that in the next section). Third and finally, the company's gross profit declined to $89.6 billion from $90.6 billion. This implies that Strategy, ex-Bitcoin, is a shrinking business. So, for Strategy to be worth anything, that value has to come from its Bitcoin holdings. Let's explore those. Strategy's Bitcoin Investment Value One of the reasons why I'm rating Strategy a hold rather than a sell is because, despite the company's operating business consistently losing money, its much larger Bitcoin portfolio provides a measure of value. In past articles, I mentioned that I am somewhat skeptical of Bitcoin's intrinsic value. I still feel that way. Nevertheless, there are industry standard metrics used to evaluate whether Strategy is hitting its own Bitcoin goals. We can use those to evaluate the company's value. One is Bitcoin yield. That's the percentage change in Bitcoin per share over time. Per its recent quarterly report, Strategy's Bitcoin yield for 2025 to-date is -3.7%. The yield was 26% in 1H 2025, and 17.8% in 1H 2024. Also in 1H 2024, Strategy set a goal for a 6% to 10% through 2027. The target was hit in 2025 but appears to be at risk of being missed in 2026, based on 1H results. The 24 month trend is one of decline. So, a poor showing on yield in Q3 from Strategy. A second factor we can look at is Bitcoin sales. Strategy has sold $431.8 million worth of Bitcoin so far in 2026. However, the Q3 ending holdings count is higher than in the second quarter , and in the first quarter . In other words, the company's purchases this year have outstripped its sales, making it a net-buyer. This would corroborate the company's claim that the sales conducted were strategic ones done for short term liquidity purposes, not changes in sentiment toward Bitcoin. Another factor we can look into is Strategy's preferred shares. They come in four series: STRC, STRF, STRK and STRD. All of these have fairly high yields; the series ranges from 8% to 12% at par value. The company also has a $3 billion buyback program for STRC, to keep that stock at par value. The expected cash outflow for paying dividends on all the preferred share classes is $1.39B per year. The buyback program costs $3 billion. Strategy's most recent press release says that the company has a $4.38 billion USD reserve. So, Strategy may need to keep selling Bitcoin intermittently to keep the buybacks and dividends coming. If Bitcoin rises in price, then the financial impact of this will be easier to absorb. Will Bitcoin keep rising in price? That's a matter of debate. One metric used to measure Bitcoin's intrinsic value is mining cost. The theory is that a Bitcoin represents, at minimum, the energy used to mine it. JPMorgan ( JPM ) recently pegged that cost at $78,000. If that estimate is correct, then Bitcoin is fairly valued right now. Another method for valuing Bitcoin compares BTC to gold, its closest competitor (ignoring other cryptocurrencies). Gold is $11.5 trillion. If Bitcoin is a more liquid form of gold, then at the current supply level, one BTC should be worth over $500,000 . This particular estimate is one that Bitcoin bulls cite frequently. I'm a little skeptical of this one, largely because the amount of money invested into making jewelry and electronics far outstrips the energy spent on Bitcoin. Nevertheless, this valuation could be realistic in a specific scenario: 1, the vast majority of cryptocurrencies fail leaving Bitcoin the only game in town; and 2, non-speculative (i.e. transactional) use of Bitcoin increases a lot. In this very specific scenario, Bitcoin might be worth as much as all the gold in the world. So we've got a range from $78,000 to $500,000 for the fair value of Bitcoin, based on conventional Bitcoin valuation metrics. None of this is an exact science, and it certainly isn't as rigorous as DCF stock valuation, and this author does not personally think Bitcoin has "intrinsic value" in the classical sense of the term. But going by the valuation methods used in the world of crypto, Bitcoin would appear to have some upside today. A Note on Valuation When it comes to valuing Strategy stock, earnings and cash flow based approaches are both not applicable, as the company’s TTM earnings and cash flows are deeply negative (see image below). This fact precludes using the P/E ratio, price/cash flow ratio and DCF models for valuing MSTR . MSTR multiples (Seeking Alpha Quant) One valuation approach that is applicable here is asset-based valuation. Strategy appears to have an “OK” valuation going by the price/book multiple. MSTR’s current price/book ratio is much lower than that of the markets as a whole. Compared to the tech sector, Strategy’s discount is even steeper. True, most of Strategy’s book value is Bitcoin, which can’t be valued by conventional multiples or DCF-based methods. However, some crypto-specific valuation methods indicate that BTC has upside, as I mentioned in a previous section. Also, BTC has a clear use case in remittances, particularly among “un-banked” clientele. So Bitcoin has some amount of fair value, just a very hard-to-discern amount. The lower MSTR goes, the closer it gets to the theoretical valuation floor set by the value of Bitcoin, net of debt. The uncertainty about that floor means that MSTR is at best a hold, but given the substantial decline in the stock’s price since I last covered it, the case for “strong sell” is no longer compelling. The Bottom Line The bottom line on Strategy is that its Bitcoin holdings provide some value, enough to put a floor on the value of MSTR shares. Were MSTR to fall in price by another 50%, it would be significantly below the current market value of the company’s Bitcoin, net of debt. That wouldn’t be a rational outcome, based on currently known information. So, I think “hold" is a better rating here than my previous “strong sell."
