Strategy (MSTR)

Bitcoin development company Strategy (NASDAQ:MSTR) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 10.9% year on year to $128.7 million. Its GAAP profit of $8.42 per share was 12.9% below analysts’ consensus estimates.

Company Overview

Once a traditional business intelligence software provider, Strategy (NASDAQ:MSTR) develops AI-powered enterprise analytics software while also functioning as a major corporate holder of Bitcoin cryptocurrency.

Note that our analysis is rooted in fundamentals, not Bitcoin-driven technicals.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

In the enterprise analytics space, Strategy competes with global software vendors including IBM, Microsoft, Oracle, Salesforce, and SAP. As a Bitcoin development company and major holder, it offers investors an alternative to direct cryptocurrency ownership, Bitcoin ETFs, and crypto-focused companies like Coinbase (NASDAQ: COIN) and Marathon Digital (NASDAQ: MARA).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Strategy struggled to consistently increase demand as its $474.9 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Strategy’s recent performance shows its demand remained suppressed as its revenue has declined by 3% annually over the last two years.

This quarter, Strategy reported year-on-year revenue growth of 10.9%, and its $128.7 million of revenue exceeded Wall Street’s estimates by 9.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

For software companies like Strategy, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Strategy’s gross margin is slightly below the average software company, giving it less room than its competitors to invest in areas such as product and sales. As you can see below, it averaged a 70.1% gross margin over the last year. That means Strategy paid its providers a lot of money ($29.88 for every $100 in revenue) to run its business.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Strategy has seen gross margins decline by 8.4 percentage points over the last 2 year, which is among the worst in the software space.

In Q3, Strategy produced a 70.5% gross profit margin, in line with the same quarter last year. On a wider time horizon, Strategy’s full-year margin has been trending down over the past 12 months, decreasing by 3.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Strategy has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 2,313%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Strategy’s operating margin rose significantly over the last two years, showing its efficiency has meaningfully improved.

In Q3, Strategy generated an operating margin profit margin of 3,023%, up 3,396.1 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

In the coming year, Wall Street expects Strategy to become more profitable. Analysts are expecting the company’s trailing 12-month operating margin of 2,313% to rise to 2,937%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Strategy’s demanding reinvestments have drained its resources over the last year, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 29%, meaning it lit $29.03 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments (i.e., stocking inventory, building new facilities) are the primary culprit.

Strategy burned through $45.61 million of cash in Q3, equivalent to a negative 35.4% margin. The company’s cash burn was similar to its $41.39 million of lost cash in the same quarter last year.

We were impressed by Strategy’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also glad its revenue and EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 2.6% to $260.76 immediately following the results.

Updated: October 30, 2025 at 11:51 PM EDT

Are you wondering whether to buy Strategy or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We cheer for all companies solving complex business issues, but in the case of Strategy, we’ll be cheering from the sidelines. To begin with, its revenue has declined over the last five years. And while its impressive operating margins show it has a highly efficient business model, the downside is its growth is coming at the cost of significant cash burn. On top of that, its gross margin is below our standards.

Strategy’s price-to-sales ratio based on the next 12 months is 164.4x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $554.36 on the company (compared to the current share price of $269.20).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.