Strategy Cuts Outlook, Establishes $1.44 Billion Reserve Amid Bitcoin Selloff — Update
By Nicholas G. MillerStrategy cut its outlook and sold shares to establish a $1.44 billion U.S. dollar reserve as the company contends with a recent slide in Bitcoin prices.The bitcoin treasury company on Monday said it now expects to report between a loss of $5.5 billion and profit of $6.3 billion for the year, or between a loss of $17 and a profit of $19 on a per-share basis.The updated guidance is down significantly from its October guidance for a profit of $24 billion, or $80 a share.The stock fell 11% in recent trading to $157.50, and has lost nearly half its value this year.The lowered view is tied to the drop in Bitcoin prices. Strategy's October outlook was based on estimates that the cryptocurrency would trade around $150,000 at the end of the year.Since then, Bitcoin has dropped from $111,612 as of Oct. 30 to as low as $80,660 on Nov. 21. The new guidance assumes the cryptocurrency will finish the year between $85,000 and $110,000.Strategy currently owns 650,000 bitcoins, which is valued around $54.84 billion based on current prices.Strategy on Monday also said it established the reserve of U.S. dollars to support dividends on its preferred stock and interest on debt. The company funded the reserve by selling shares. It intends to maintain a reserve sufficient to fund at least 12 months of its dividends and plans to expand the reserve to cover 24 months or more.Executive Chairman Michael Saylor said the reserve would better position the company to navigate short-term market volatility.Benchmark analyst Mark Palmer said that some critics of Strategy have cited the company's annual outlays of $779 million to cover dividend and interest payments as a significant threat to the company's existence.However, he said the expenses are manageable, even before Strategy disclosed its reserve fund.Write to Nicholas G. Miller at [email protected].