02 / Earnings quality

Paper Bitcoin gains are not operating cash.

Strategy began reporting Software and Bitcoin as separate segments in Q2. The Software segment reported $3.709m net income in Q2. Its calculated pre-tax income was $5.267m. The $15.585m loss shown in the operating comparison is a broader consolidated adjustment, after removing Bitcoin remeasurement. These measures include different costs and are not interchangeable.

The first-half software loss includes a large tax expense associated with deferred-tax valuation allowances. That accounting charge does not mean the software business spent the reported loss in cash.

Subscription growth also reflects customers moving from on-premises support to cloud subscriptions. It is not solely new-customer growth. The filing warns that the planned end of full on-premises support on 31 December 2026 can create transition and customer-retention risk.

Q2 software revenue was $122.368m, up 6.9% YoY, with gross profit of $81.550m. Subscription revenue grew 54.0%; product support revenue fell 22.7%. The mix shift needs to be read beside the customer migration described above.

Sources: Strategy Q2 2026 results and capital update; Strategy Q2 2026 Form 10-Q; Strategy 2025 Form 10-K.

04 / Cash and priority claims

Ordinary shareholders are paid after senior claims.

Latest reported USD Reserve is $4.88bn and USD Cash is $640.5m. They total a calculated $5.52bn. The June balance-sheet cash is not added a second time.

The Reserve supports preferred dividends and debt interest. It reduces near-term liquidity pressure but is not free distributable cash. The company can replenish it through capital markets or Bitcoin sales under its June framework; it no longer follows an unconditional never-sell assumption.

Calculated preferred priority claims total $13.79bn. The contract calculation uses the ten completed sessions before 12 October, excluding the 12 October price. Dividend rates still apply to stated amounts, not those changing liquidation preferences. Future issuance, trading prices and the number of securities can change the claim.

The October 11 disclosure separates a $4.88bn USD Reserve for preferred dividends and debt interest from $640.5m USD Cash for broader uses. Together they total a calculated $5.5205bn, without adding June cash again. The reserve buys time; it does not create recurring earnings. New common shares can fund bitcoin purchases or preferred repurchases, while shrinking each existing holder’s ownership unless the transaction adds enough value per share.

Sources: Strategy: October 12 BTC, ATM, STRC and dollar balances; Strategy June 29 digital-credit capital and BTC monetization framework; Strategy Q2 2026 results and capital update.

Sources: STRF governing annex: liquidation preference and dividends; STRC governing certificate: June 30 effective terms; STRK governing annex: ratified preference and dividend terms; STRD governing supplement: preference and noncumulative dividends; STRE prospectus: initial-issuance liquidation preference.

06 / Capital strategy

Accretion depends on the price of new capital.

Strategy uses software operations and capital markets to manage a large bitcoin balance sheet. Its June capital framework permits bitcoin sales to support the dollar reserve, pay dividends and interest, and fund securities repurchases. Bitcoin holdings need not rise every week. BTC Yield measures changes in bitcoin per assumed diluted common share; it is not cash interest, an MSTR dividend or a shareholder return, and it does not subtract senior debt and preferred claims.

On October 12 Strategy disclosed 250 BTC purchased, 125,183 MSTR shares sold and 1,932,145 STRC shares repurchased during October 5–11. On October 5 management estimated a $20.91bn Q3 digital-asset gain and $1.88bn associated deferred tax expense, with a $1.88bn bitcoin-related net deferred tax liability at September 30. Those estimates were neither audited nor reviewed. Full Q3 results are scheduled for October 29 after the U.S. close. A proposed daily dividend cadence goes to an October 28 vote; it has not yet been approved.

Financing gains need to cover recurring cash demands

A hypothetical $5bn common issue at $152.68, with 1% fees, raises immediate common NAV from $123.75 to $125.70. Applying one year of the stated $1.39bn net cash-cost assumption then gives $122.68. This is a combined sensitivity, not a financing forecast. New proceeds are treated as equally valuable assets; the unchanged Bitcoin price does not prevent the company buying more coins.

For context, reported first-half consolidated operating cash flow was $9.85m. That is not a separately reported software cash-flow measure. Zero software cash flow in the illustration is an assumption, not a conclusion from the company-wide operating loss.

Sources: Strategy June 29 digital-credit capital and BTC monetization framework; Strategy: October 12 BTC, ATM, STRC and dollar balances; Strategy announces October 29 Q3 results; Strategy October 5 Form 8-K: preliminary Q3 bitcoin and tax estimate; October 5 definitive proxy: September 25 share count; daily dividend proposal.

08 / What changes the answer

Bitcoin, taxes and financing change the answer.

There is no objective probability assigned to a Bitcoin path or a financing premium. Further stock issuance, preferred issuance, debt conversion or Bitcoin sales would change this grid.

10 / Calculation and limits

A residual claim, with assumptions in plain view.

Reported, calculated and assumed. R means reported; D means calculated from reported inputs; S means an analyst assumption. Common NAV = Bitcoin quantity × Bitcoin price + USD Reserve + USD Cash + software enterprise value − remaining debt principal − remaining preferred priority claims − tax claim − conservative cash-accrual allowance. Per-share value = max(0, common NAV) ÷ share denominator × (1 + equity premium).

Holdings and the capital stack are held fixed in these conditional calculations. Base retains the dated reported tax claim; Bear and Bull use an assumed 21% response from the reported tax/asset anchor and show 30% alongside it. The original fixed-tax Bitcoin/premium grid is retained only as a one-variable sensitivity with an explicit limitation. No date target, Bitcoin forecast, probability or future issuance is assumed.

The share denominator is the September 25 Class A and Class B total, plus disclosed later ATM share sales through October 11, plus a 1% assumed award allowance. It is a pro forma estimate; unreported exercises, vesting and settlement changes remain uncertain. The issuer’s assumed diluted share measure is different.

Assumed residual enterprise value at 1× twice reported H1 software revenue; no BTC remeasurement earnings included, no claim that annualization is guidance. Working capital and ordinary software liabilities remain within this enterprise-value assumption. Preferred priority claims use the dated contractual calculation: ten prior closing last-sale prices for the reviewed USD series, $100 floors, and conditional €100 for STRE before any later issuance/resale. This is calculated rather than issuer-certified. Later prices, issuance and unpaid dividends can alter the claim. NAV grants no common redemption right. Each convertible remains a debt or preferred claim in the main model, without its conversion shares.

The Base snapshot retains the preliminary September 30 net BTC deferred tax liability of $1.88bn, disclosed October 5. Bear and Bull use an assumed 21% response to the change from the reported $70.82bn BTC carrying value after adding $50.2m subsequent acquisition costs. A 30% response is also shown. These are analyst sensitivities, not issuer tax rates, exact tax bases or cash tax calculations. Tax = max(0, 1880m + response × [modeled BTC value − 70820m − 50.2m]); no loss tax asset is assumed. Reported tax and a response adjustment form one claim; a second tax provision is never added.

Assumed conservative, unverified cash-accrual allowance of 160.776m, calibrated to the June preferred dividends payable 155.157m plus accrued interest 5.619m. It does not assert that those June payables remain unpaid or that they equal current accruals. Current amounts and any arrears remain uncertain. The USD Reserve and USD Cash are included once; June cash and Treasury holdings are not added again. This is an asset-value reference, not a liquidation appraisal, common redemption right, or complete valuation of future financing ability. The October 12 Bitcoin daily reference has no verified intraday timestamp and is not synchronized with the equity close.

Calculated annual preferred cash dividends are about $1.52bn, plus $37.8m of modeled interest. The USD Reserve alone covers about 3.1 years of that run rate. This excludes principal repayments, operating costs and tax; dividend rates, declarations and policy can change. It is not a guaranteed runway.

The premium comparison is share price divided by this modeled net common NAV per share, minus one. It is different from an enterprise-value-to-gross-Bitcoin-assets multiple. Common holders do not have a right to redeem shares at NAV.

Sources: Strategy: October 12 BTC, ATM, STRC and dollar balances; Strategy Q2 2026 Form 10-Q; October 5 definitive proxy: September 25 share count; daily dividend proposal; Strategy October 5 Form 8-K: preliminary Q3 bitcoin and tax estimate; October 1 Form 8-K: STRC 12% rate and conditional dividend cadence.