MicroStrategy Could Merit S&P 500 Inclusion If It Adopts New Accounting Rules: Benchmark

As a seasoned financial analyst with extensive experience in following technology companies and accounting standards, I believe that MicroStrategy (MSTR) has a significant opportunity to boost its earnings and potentially join the S&P 500 index if it adopts new accounting standards for digital assets.

MicroStrategy (MSTR) might exceed analysts’ expectations when they announce Q1 2024 earnings if the business decides to implement new accounting rules. This potential shift could enable MicroStrategy to meet the criteria for joining the S&P 500 index, as suggested in a Benchmark research note published on Thursday. The earnings report is scheduled for release after market hours on April 29.

I’ve observed MicroStrategy’s corporate strategy, which includes the acquisition and maintenance of bitcoin as a significant component. As of March 19, they owned approximately 214,246 bitcoins, valued at around $13.9 billion based on current prices. However, it is important to note that since integrating bitcoin into their balance sheet, the company has incurred impairment losses totaling $2.27 billion due to FASB’s ASC 350 rule.

Expert: According to analysts’ projections, MicroStrategy is expected to record a loss of $0.55 per share during the first quarter of 2024. However, if MicroStrategy chooses to adopt the new standard earlier, they might report earnings exceeding $300 per share for that particular quarter instead. The company meets almost all requirements for S&P 500 inclusion. It is a US-based corporation with easily tradable shares, approximately half of its outstanding shares being accessible for trading, and a market capitalization surpassing $18 billion.

To be considered for the S&P 500 index, MicroStrategy must have reported positive earnings in its last quarter. However, the software company has recorded losses in nearly three-quarters of the previous ones. Despite this, if MicroStrategy adopts the new accounting standards ahead of others, it could meet the criterion for inclusion. According to Palmer’s analysis, joining the S&P 500 would enhance MSTR’s stock valuation due to passive inflows from index funds. Nevertheless, potential tax implications might deter the company from early adoption.