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MicroStrategy (MSTR -5.45%)
Q3 2021 Earnings Call
Oct 28, 2021, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Jeremy Price

Good evening, everyone. I'm Jeremy Price, MicroStrategy's senior vice president of financial planning and analysis and head of investor relations. I'll be your moderator for MicroStrategy's 2021 third quarter earnings webinar. Before we proceed, I will read the safe harbor statement.

Some of the information we provide in this presentation regarding our future expectations, plans and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-Q filed with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. Also in this presentation we will refer to certain non-GAAP financial measures.

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Reconciliations showing the GAAP versus non-GAAP results are available in our earnings release and the appendix of this presentation, which were issued today and are available on our website at www.microstrategy.com. We would like to welcome you all to today's webinar and let you know that we will be taking questions using the Q&A feature at the bottom of your screen. You can submit questions throughout the webinar, and Michael or Phong will answer your questions at the end of the session. Please be sure to provide you name and your company's name when submitting your questions.

And with that, I will turn the call over to Michael Saylor, chairman and CEO of MicroStrategy.

Michael Saylor -- Chairman and Chief Executive Officer

Thank you, Jeremy. I'm Michael Saylor, the chairman and CEO of MicroStrategy. I'd like to welcome all of you to today's webinar regarding our third quarter 2021 financial results. I'm here with Phong Le, our president and chief financial officer.

First, I'd like to pass the floor to Phong, who's going to provide an update on our operations and our financials for the quarter.

Phong Le -- President and Chief Financial Officer

Thank you, Michael. We're pleased with the performance in the third quarter across both of our strategic priorities. For the fifth straight quarter we posted strong financial and operational results with our software business and made investments in Bitcoin. Our enterprise analytics business delivered another strong quarter, and we are seeing growing adoption of the MicroStrategy platform, especially in the cloud by new and existing customers.

We also had another active and successful quarter with our Bitcoin acquisition strategy, executing on our fourth successful capital raise in the past year and expanding our digital asset holdings. Our results in the third quarter are indicative of the multiple ways MicroStrategy is able to create meaningful and unique value for our shareholders. Total revenue in the quarter grew slightly year over year to $128 million. This is a strong performance against an incredibly difficult comp in the third quarter of 2020.

As you might recall, in Q3 2020 we signed several deals that were delayed from the first half of 2020 due to COVID-19 and signed a large expansion transaction with a major financial institution. Comparing against 2019, which adjusts for these impacts, total revenue grew 7% versus the third quarter of 2019. We think this is a good proxy for the underlying growth of the business. License revenue was down 13% year over year, but up 36% versus the third quarter of 2019.

Subscription revenue in the quarter was up 31% compared to Q3 of 2020. Current subscription billings grew 23%, our sixth straight quarter of double-digit growth. Finally, we had another strong quarter of profitability with a non-GAAP operating income of $27.7 million and margin of 22%. MicroStrategy cloud continues to become a growing mix of our business, while our on-prem product continues to perform well.

We're committed to meeting the needs of our customers, regardless of how they would like to deploy MicroStrategy, some of whom operate in highly regulated industries or countries where a cloud deployment is not feasible. When you look at the overall growth of our subscription and license businesses, it is clear that underlying demand for our platform has demonstrated signs of strength. I'd like to highlight the three emerging trends in the data and analytics industry, acting as tailwinds for MicroStrategy. These trends are converging to create enterprise analytics supercycle, which is likely to widen the gap between organizations that are able to maximize their investments in data analytics and those that cannot.

First, the demand for enterprise analytics has grown and has been accelerated due to the structural changes as a result of the pandemic. Enterprises are striving to stay ahead of changes in market trends, customer demand, supply chains, and employee availability. The capacity to rapidly develop and deploy business and productivity applications to users at any location is now essential. To get there, the data-driven organizations are rushing to modernize their analytics, as well as need data and business apps to the cloud.

This market shift is putting pressure on legacy mega vendors who are prioritizing moving their ERP and infrastructure customers to cloud versus investing in their own BI applications. As enterprises now evaluate options to modernize their analytics and BI solutions, MicroStrategy has emerged as a logical vendor of choice because of its full-scale enterprise capabilities. A conclusion is substantiated by an accelerated replacement of legacy and mega vendor BI platforms. Examples this quarter, our license deal, we won the largest hotel brands worldwide to replace Cognos for their entire property fleet, as well as a big consulting deal with a leading media and entertainment company to migrate their legacy reports from business objects to MicroStrategy.

The second trend is that proven solutions are replacing experimental initiatives. And enterprises are turning to trusted partners that deliver concrete results. According to a growing number of industry analysts, there is a notable reduction in organization's willingness to experiment with niche technologies in the times of macroeconomic uncertainty. In the short term, it leads to focusing on customers.

During this year, enterprises have prioritized the use of a unified platform that can deliver a broad set of use cases and are typically seeing significant cost savings through vendor consolidation. An example is a major win in a large insurance company to replace their suite of point experimental unproven VI solutions. The third trend is that the enterprises are now buying and not building analytics. To meet this demand, a growing number of OEMs as are supporting enterprises by developing solutions which require partnering with an open enterprise-scale technology vendor.

MicroStrategy is well-positioned to benefit from this growing trend in the embedded analytics and OEM marketplace. We are No. 1 in the market in our embedded OEM business. We have seen an increased interest from new and existing customers that want to leverage our innovative business analytics platform as a core part of their technology solution.

We believe our extensive investment in an open architecture driven by open APIs and SDKs provides OEMs with the best solution in the market. We experienced notable growth in both the number and size of OEM opportunities, including a deal with a multinational consumer credit reporting company and a deal with a video analytics company. Continuing with market sentiment. I'm also pleased to share that MicroStrategy was recognized with the Customers' Choice distinction in Gartner's latest Voice to the Customer report, which summarizes customer feedback on their BI platforms.

We're now more than a year into our virtual wave strategy, and we have seen this approach can drive faster growth and greater productivity on a sustained basis. We're particularly pleased with our profitability performance with non-GAAP operating margin above 20%. This is the eighth straight quarter with an improvement in our year-over-year non-GAAP operating margin. To provide some context around our increase in sales productivity, our sales and marketing, and G&A expenses on a trailing 12-month basis are down $34 million or 12% from fiscal year 2019 levels, while our product license revenue has grown 36% since Q3 2019, and subscription services revenue has grown 37% over that time.

This translates to an increase in our sales productivity of 31% in the last year and 72% in the last three years. As a result, we repurposed some of those savings into R&D investments in areas like cloud, security, OEM, and new innovations to enhance our value proposition and lay the foundation for long-term durable growth. This is a virtuous cycle that we believe we can continue delivering on going forward. It's important to note that our pace of innovation is as impressive as it has been in many years with the company now produced quarterly and monthly software updates.

Our team is working on a robust set of product features and enhancements that we believe will expand the value we provide customers and represent future incremental growth opportunities. To summarize our priorities, our focus going forward remains on moving to cloud, expanding our OEM market share, modernizing our customer base, and using our innovative offerings like HyperIntelligence to expand new prospects. Overall, I'm very pleased with the way our analytics business is performing. We are on the path of consistent growth, and we're confident in our ability to achieve our long-term growth and profitability targets.

Turning now to our Bitcoin strategy. We had another active and successful quarter. We raised approximately $400 million in capital through the sale of Class A common shares as part of our aftermarket offering during the quarter. We used the proceeds of this offering and excess cash to purchase an additional approximately 8,957 Bitcoins at an average price of $46,876 per Bitcoin, net of fees and expenses.

This is the fourth successful capital raise we've done in the past year, having raised $2.6 billion in new debt and equity capital that we deployed in support of our Bitcoin acquisition strategy. We have approximately $600 million remaining in our existing ATM facility, and we'll continue to be opportunistic in executing against it. Today, MicroStrategy owns approximately 114,042 Bitcoins that we acquired for a total cost of $3.2 billion or $27,713 per Bitcoin. The market value for our Bitcoin holdings was approximately $5 billion at September 30, 2021, reflecting $1.8 billion of unrealized gains or approximately 57% depreciation when compared to the cost basis of our Bitcoin at September 30, 2021.

The book value of our BITCOIN holdings is $2.4 billion. As of yesterday, October 27, 2021, at 4:00 p.m. Eastern Time, the market price of one Bitcoin in our principal market was approximately $59,111, which equates to a market value of roughly $6.7 billion of Bitcoin, representing more than 110% depreciation. MicroStrategy has pioneered the use of digital assets as a core component of enterprise treasury policies, created billions of dollars of incremental value for our shareholders.

And in doing so, established itself as one of the world's largest owners of Bitcoin. We will continue to evaluate opportunities to raise additional capital to execute on our Bitcoin acquisition strategy, which has the potential to offer asymmetric upside to our shareholders. Before I turn to a more detailed review of this quarter's financial results, I want to reiterate how pleased we are with the execution of both of our strategic priorities. As a result of our strong financial performance, year-to-date, the company is reaffirming our 2021 estimate of non-GAAP operating income of $80 million to $100 million.

We also expect further acceleration of our cloud billings in Q4 2021 and going into 2022. We are excited to provide an update on our strategy later this quarter when we hold our 2021 Investor Day on December 2, 2021. We're looking forward to providing a deep dive, the future path of our enterprise analytics business and digital asset holdings and how it will benefit shareholders over time. Turning to our third quarter 2021 financial results in more detail.

GAAP revenues for the quarter were $128 million, up slightly year over year and up 7% from the third quarter of 2019. Product license revenues were $25.8 million in the third quarter of 2021, down 13% year over year and up 36% from the third quarter of 2019. As mentioned earlier in the call, comparison with third quarter of 2019 is a good proxy for the underlying growth of the business due to the effects of COVID-19 and a large expansion transaction we signed with a major financial institution in the third quarter of 2020. Subscription services revenue in the third quarter of 2019 was $10.9 million, an increase of 31% year over year.

The growth in subscription services revenue reflects a growing portion of our product bookings that are related to our cloud -- managed-cloud platform. Our current subscription billings in the third quarter of 2021 were $8 million, an increase of 23% year over year. We're pleased with the performance of our cloud business in the third quarter, and we'll look for growth to continue to accelerate. Product support revenues were $70.4 million in the third quarter of 2021, a decrease of 1% year over year, primarily driven by certain existing customers converting from perpetual product licenses to our subscription services or term license offerings.

As we see more on-premise conversions to our cloud offering, we would anticipate product support revenue will experience a modest decline over time. Finally, other services revenue, which largely reflects our consulting services for $20.9 million in the third quarter of 2021, an increase of 15% year over year. Improvements in consulting revenues are an indication of continued engagement from our customers to modernize and expand deployment of their MicroStrategy platform. Total GAAP expenses were $177.7 million in the third quarter of 2021, which includes the digital asset impairment charge of $65.2 million.

Our Bitcoin holdings are considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in our fair value below our book value for such assets at any time subsequent to their acquisition requires us to recognize impairment charges. Total non-GAAP expenses were $100.3 million in the third quarter of 2021, a 1% decrease year over year. Total GAAP operating loss was $49.7 million in the third quarter of 2021, inclusive of an impairment charge related to Bitcoin of $65.2 million and stock-based compensation expense of $12.2 million. Total non-GAAP operating income was $27.7 million in the third quarter of 2021, a $1.1 million increase year over year.

Turning to the balance sheet. We ended the quarter with $57 million in cash. The carrying value of our Bitcoin holdings as of September 30, 2021, was $2.4 billion, which reflects an approximately $755 million in cumulative impairment charges that has also been reflected as a loss on our GAAP income statement in the period incurred. We exclude the quarterly impact of Bitcoin impairment charges from our non-GAAP operating income, non-GAAP net income, and non-GAAP diluted earnings per share calculation.

Bitcoin prices experienced relatively less dollar volatility in this quarter compared to the purchase prices, resulting in lower GAAP noncash impairment charge of approximately $65 million versus $425 million last quarter. As one of the leading advocates for digital assets, we've been working with peer companies and various policy-setting agencies in the U.S. to try to determine a more appropriate accounting framework for digital assets. We recently wrote to the Financial Accounting Standards Board, FASB, that the disconnect between an entity's financial statements and the economic reality of its financial condition and results of operations, sales to provide investors, analysts, and the general public with the information they need to make an informed assessment of an entity's current and future prospects.

Currently, companies that aren't investment companies, report Bitcoin as intangible assets. This means that coin gets initially reported on balance sheet at its historic cost and then is deemed impaired at the market value ever dips. However, the carrying value can never conversely be revised upwards if the price of Bitcoin increases. As the largest publicly traded corporate holder of Bitcoin in the world, we believe we have a responsibility to share what we've learned since embarking on this strategy to make it easier for other companies to diversify their balance sheet with this new asset class.

Going forward, you should continue to expect that we may purchase additional Bitcoin when our cash, cash equivalents, and short-term investments exceed current working capital requirements, and we may from time to time, subject to market conditions, continue to issue debt or equity securities and capital raising transactions with the objective of using the proceeds to purchase Bitcoin. Finally, we continue to be actively engaged in our search for the company's next CFO. They have a strong and stable executive team in place, with an average tenure in MicroStrategy of greater than 13 years and believe adding a dedicated CFO will help us in the pursuit of both of our strategies. I look forward to having more time to focus on my role as President, running the day-to-day business of MicroStrategy, as well as strategically planning for our long-term, helping growth.

I'll now turn the call over to Michael for comments on our Bitcoin acquisition strategy, as well as market trends for business intelligence software and our executive team.

Michael Saylor -- Chairman and Chief Executive Officer

Thank you, Phong. I'll make a few comments on MicroStrategy and its business intelligence business, our macro strategy, and our Bitcoin acquisition plans. And then on the outlook for Bitcoin in general. So why don't we start with macro strategy? As Phong has pointed out, the business is running very, very well operationally.

Every quarter for the last eight quarters we've got operationally more efficient. We're profitable. We're generating a very healthy operating margin. And I'm very pleased with the stability and the maturity of that business.

I mean, the three key themes that we would focus on will be the shift to modern analytics from the legacy BI vendors. And we're benefiting by having made large investments to modernize our platform, and we offer an upgrade path that has a future to large enterprises that made their BI decisions back in the 2000 to 2010 time frame. Many of them are running on architectures that have languished for the past five to 10 years, and they're looking for something which is fresh and vital and modern. So we do win a lot of business there.

And I think that that trend will continue. It probably will be even more of an important trend in the next few years. The shift to enterprise cloud continues. As Phong had pointed out, in some cases companies can't, but we think that there'll be a steady progression of motion from on-premises installations to cloud installations.

And as that happens, we're able to add value and improve the overall value proposition of MicroStrategy. And also, that just improves the operational efficiency of our company, and it improves the operational efficiency of our customers. So everyone in the world is looking for more operational efficiencies. How do I get newer technology that runs more efficiently within my enterprise? And certainly, the shift to enterprise cloud is consistent with that.

The third theme that we continue to see is the increased prevalence of embedded analytics. Our customers looking to OEM or analytics or embed our analytics into their applications that are facing their customers and their constituencies. And MicroStrategy's made huge investments and a broad-based set of investments and initiatives in order to provide powerful SDKs and APIs and embedding capability. And so that's helped us as well.

I think that the business will continue to be driven by those three dynamics, and we're very optimistic about where they'll take us. Shifting subjects to our macro strategy to acquire and to hold Bitcoin. Most of you have followed that journey. Following our Dutch auction, which ended in September of last year, we acquired more Bitcoin.

And then following our first convert, we were able to acquire more Bitcoin. Then a second convert to acquire more Bitcoin, then a senior secured debt offering to acquire more Bitcoin. And then an at-the-market equity offering to acquire more Bitcoin. And along the way, we used operating cash flows and other free cash flows from the business to acquire more Bitcoin.

There is no one answer to how we go about acquiring Bitcoin. We are committed to continuing to acquire Bitcoin. We don't have a plan to sell Bitcoin. We're going to keep the Bitcoin.

For those of you who follow me on Twitter, I've pointed out that you should not sell you Bitcoin. We believe that Bitcoin represents a great long-term investment for the shareholders. So we're constantly evaluating the Bitcoin market and the market for our equity and the debt markets, both the convertible debt markets and the senior debt markets and other options, just to consider whether there is an opportunity for a capital raise that makes sense. We had a $1 billion ATM, but as many of you will notice, we didn't execute the entire $1 billion in the quarter.

We thought that the $400 million that we did execute was accretive to the shareholders. And the timing of it was opportunistic. We felt that it was a wise management decision to sell the equity and to buy Bitcoin at the time we did. There'll be other windows where we'll think something different.

At times we thought the most accretive action was a convertible debt issuance. But back in the second quarter, we decided that a senior secured note was more accretive. It's impossible for us to know exactly what the right activity is going to be going forward because the markets are continually changing. We keep our options open.

And we work to make sure that we can move with alacrity if we need to, in order to seize an opportunity. Looking forward, we're open to partnerships that allow us to acquire more Bitcoin. We're open to credit lines that might allow us to acquire more Bitcoin. We're open to asset-backed financing that might allow us to acquire more Bitcoin.

And we will just continually evaluate these things. With regard to Bitcoin, well, Bitcoin is a pretty hot topic right now across the political media, across the financial media, across cyberspace. I think that the things that are worth focusing on are the institutional maturity of the asset class has taken place over the past three months. You know, we came into the year with two existential risk, will the Chinese be able to control Bitcoin or will a government ban Bitcoin.

And it turns out that the China exodus resulted in the United States, North American Bitcoin miners becoming leaders in the Bitcoin mining business. And so a big question about whether China could control or wanted to control Bitcoin was taken off the table. The second question is, would it be banned? As I've met with institutional investors and all interested figures. The most common question is, well, it seems to be so good in every respect, it's so perfect that surely there's a catch.

I guess the government may want to regulate it or ban it. And we got beyond the -- well, what is it technically, and what does it do, and why would you want to own it? It all came down to, well, it just seems to be too good to be true, someone's going to ban it. And I think the last 12 weeks have been really instrumental in putting that fear to rest. First of all, when the Chinese cracked down on Bitcoin mining, they didn't ban the ownership of Bitcoin, and that was an interesting nuance.

Second, we had senatorial hearings and congressional hearings where we saw a broad array of senators express support for Bitcoin. And we saw a broad array, a bipartisan array of congressmen and Congress people express support for Bitcoin. And so we can see Congress and Senate are very supportive. We've seen people ask point blank at Treasury, at the SEC, at the CFTC, do you have any intention to ban cryptocurrencies? And the answer is no.

And specifically with regard to Bitcoin, I think it's quite clear that within treasury, within the CFTC, within the SEC, and with the EU Central Bank, there's no intention to block institutions from owning this asset. It's been referred to as a scarce speculative digital asset or store of value asset. And I think the clarity that's come into the marketplace is that it's not a currency, it is an asset. It's going to be taxed as an asset, which means on sale you would pay a capital gain, short or long-term capital gain of sorts.

It's not going to be treated as a medium in exchange or a currency in the western world, most of the world, with just a few exceptions. I think that that's provided clarity for institutional investors. So the commentary from the SEC, the treasury, the Senate, Congress, I think was probably one of the most important things that happened in the quarter. I think that we just saw the chair of the FDIC express interest in working through the necessary guidance to allow banks to hold Bitcoin on their balance sheet.

And I thought that was very auspicious. I think the fact that FASB is willing to take up this matter, at least asking for comments from the community on Bitcoin accounting is very auspicious. And the hundreds and hundreds of responses from institutional investors, from publicly traded companies from audit firms, from professional firms, from individual investors that were returned to FASB were very auspicious. And there is a general sentiment in the marketplace that this is a very important issue for regulators to take up.

So we've moved beyond the will it be banned to the -- it's clearly an innovation, and it's a basis for the 21st century economy, and it's very important to financial innovation and technology leadership of the western world. I think that being the case, that removed a big hurdle for many institutional investors to own Bitcoin. I think another big hurdle has been the lack of an ETF because all of the financial advisors of which there is 220,000, I guess, in the U.S., holding or controlling $100 trillion of assets, those financial advisors couldn't buy Bitcoin with their existing prime brokerage accounts, with their existing accounting systems or be compensated for that Bitcoin. That's a big deal.

That's the difference between being able to take 60 seconds and buy $20 million and have it part of your collateral package and borrow against it. Or take six months to go through a whole set of due diligence to try to set up a new set of accounts and rebuild all your accounting systems and rebuild your vendor relationships and then carve $20 million out of your capital where you could not margin it and you couldn't borrow against it. And as you can imagine, that's -- it's not 10 times target, it's probably 100 times or 1,000 times harder for a financial advisor to acquire Bitcoin without that simple ETF. So I think ETFs are really important to institutional adoption.

And we got our first two ETFs in the past week. There's another 40 that are in the application process. I think the writing is on the wall. There will be more ETFs coming at a certain rate.

I think that it's another check box that an institutional investor would go through. I think that the lack of FDIC guidance would hold back the development of the asset class. But as I've said on Twitter, when the -- when that guidance is clear, there's a lot more demand to own this asset, and there'll be almost -- there's going to be much less demand to sell the asset because if the banks can hold the asset and collateralize the asset and extend the loan against the asset, right, then what you're going to see is a dramatic lessening of the supply available for sale. So what we see right now is a difficulty with regard to the accounting.

It's a challenge. If you're a CFO and you want -- and you're maintaining a pristine P&L and a pristine balance sheet, taking on billions of dollars of Bitcoin. And during the volatility of that would result in operating losses that are just due to the Bitcoin volatility or a markdown of your assets due to Bitcoin volatility, and that would cause you to slow down your acquisition. So I think the FDIC issue, the FASB issue, and the ETF issue, they're all things that slow down the institutional adoption of Bitcoin, but they're also -- they're also items that -- it's pretty clear the writing is on the wall sometime in the coming few years they will be resolved, right? There seems to be a sentiment at FASB, at the FDIC, you know, and at the SEC that these issues should be addressed.

So knowing that's the case, right? And then looking at Bitcoin in general, we see that Bitcoin is up 300-plus percent in 12 months. What I've said jokingly is you almost wouldn't want the problems to be solved much faster than they've been solved. If we went much faster, I mean, you could imagine a Bitcoin went up 1,000% in a year we might very well rip the wings off the airplane. It just -- it would be too fast.

And so I think that there's pretty clear sentiment among regulators and among Congress and throughout the world that digital assets are here to stay, that crypto economy needs to be addressed, it needs to be brought into standard public policy frameworks. And the Bitcoin itself is property, Satoshi's innovation is real, and this is good for the western world. And so I see those as suspicious. I also think the -- we can see signs of the development in the Bitcoin banking sector.

Today I published a press release from NYDIG, where NYDIG is actually offering credit lines against Bitcoin in order to buy cars. And so that's very interesting. If you can actually buy things by pledging Bitcoin as collateral, we're going to see, I think, a change in sentiment that more and more people are going to see Bitcoin as the pristine collateral. And at that point, you flip from being a seller so that you can buy your Lamborghini to being a borrower or a buyer so that you can wait for it to appreciate so you can borrow against it to buy your Lamborghini.

It's a very subtle change. And I know I'm using a retail example. But I think the same is true with institutions. I think that if you're an institution and you bought $1 billion worth of Apple stock, and it was with your prime brokerage and you could borrow against it at LIBOR or SOFR plus 50 basis points up to 50% loan to value, I think you can bargain Apple stock at more like 80% loan to value.

So you could borrow $800 million at less than 1% interest against Apple stock with your prime brokerage, making that decision in minutes. Now if you had to take the entire $1 billion, pull it out of your prime brokerage and go set up a different account and go through the KYC AML and go through due diligence, and then if I told you it was not going to be collateralizable. Now instead of having $1 billion and being able to draw down another $800 million, you have a six-month exercise and your $800 million went to zero. You can see that you're discouraged from supporting the asset class or moving into it as, you know, we solve this problem as the big institutional Bitcoin exchanges like coin-based and fidelity, build their institutional accounts.

That's one way we solved the problem. The second way the problem in solved is the FDIC starts to give guidance or clarity. And if that happens, right, then you would see major banks moving into the custody and other services. And the third way we see the problem getting solved is, is many of the larger banks start to handle trading of digital assets through their trading desks, and we're starting to see that taking place more often.

And then the fourth way is the ETFs mature. And as the ETFs mature, they don't give access to the Bitcoin property, but they give access to the security. And the security itself is collateral against the prime brokerage account. And so the securities available dramatically decreased the barriers to entry.

And we're seeing a dramatic increase in Bitcoin securities in the past three months for a couple of reasons. One is the spread of the ETFs and ETF-like instruments. And the second is the number of Bitcoin miners that are coming public. And I think it's a consistent theme.

We see more miners. We see Hut 8 that has been listed on the NASDAQ Stock Exchange. We see Argo getting listed on the NASDAQ or the American stock exchanges. We see other companies that are coming public or have plans to come public, either through SPACs or through direct IPOs.

I think that you're going to continue to see more and more companies that are either Bitcoin miners or Bitcoin-linked or Bitcoin ETFs or the like. Those are on-ramps for institutional investors to get exposure via their prime brokerage arrangements through their conventional accounting systems, with their conventional business models. And in some cases, some cases the funds have charter requirements to hold securities rather than property or they're looking for different types of securities, like they want equities or they need to be a certain capitalization size or they're looking for debt instruments in order to get exposure. So if I were to roll the clock back nine months, very little of what I've just said was in the public domain.

So the last nine months have been pretty dramatic. The past three months, extremely dramatic maturing of the asset class because of the successful redeployment of the Bitcoin mining network to North America following the China crackdown and because of many, many constructive developments that have taken place in the regulatory front. I think you could -- you could put your finger on one more thing, which is interesting, which is the Bitcoin integration with technology firms like Square, Twitter, Robinhood. Square has continued to improve the Bitcoin functionality, you know, allowing people that are interested in acquiring Bitcoin property to quickly buy it on the Square Cash App and also move it quickly and easily via Square Cashtags.

And that's pretty important. And there are millions and millions of people that are being touched that way and being served that way. I think that when Twitter integrated Bitcoin tipping into Twitter, I think that was a big development in the ecosystem. It's possible to actually dramatically improve the cybersecurity of Twitter or Facebook or YouTube or Google or Office 365 or any social media or communications network using Bitcoin and Lightning.

And I think the tip of the iceberg was Twitter and tips. But we really are at just the tip of the iceberg. I think that there's a profound game-changing dynamics here with big tech and Bitcoin. And you can see it in the demand for functionality with Square.

You can see it with the integration of Bitcoin into Twitter. You can see in the comments of many executives. I think the CFO of Twitter referred, you know, to the possibilities that an open monitoring network like Bitcoin offer. I think we saw an extraordinary thing take place this quarter in El Salvador, where more than, I think, 3 million people downloaded a Chivo wallet, which is a Bitcoin Lightning wallet.

More people now have a Bitcoin bank account via that Lightning wallet and Chivo then got a bank account in 100 years via the conventional banking system. So I think there's a gradual growing awareness that the 20th Century banking system is 1,000 times as expensive as the 21st century banking system. The future of banking is I download a mobile app in 60 seconds, I turn it on and I have a bank, and my variable cost is zero. I don't have to buy the phone, I already own the phone.

I don't have to pay for the network, I'm already on the network, right? If your vision is, let's give banks to 2 billion people by building bricks-and-mortar institutions and running everything through the Fed wire and negotiating central bank protocols and going through 20th century methods and regimens, then I think you realize that's just not going to work. If your idea is let's just upload a mobile app and let 20 -- or 2 billion people download it from the Android store or the iPhone store for 0, that will probably work. We know that will work. You can see that's how we spread music and free books and Google and WhatsApp and the like.

So we saw that example at a nation-state level this quarter with El Salvador. And not only did they successfully deploy to 3 million people, they also began to put Bitcoin on their balance sheet and they started buying Bitcoin for -- on behalf of their people, and that's an extraordinary example. And I think it has a lot of people thinking right now. I think the other example we can see is with Robinhood where Robinhood lets their users trade cryptocurrency, and there was a massive demand to integrate Bitcoin withdrawal capability into the Robinhood app.

And I think they have more than 1 million people on the waiting list for that functionality now. So I think that the writing is on the wall. And the writing is if you want to be a competitive big tech provider of payments or big tech provider of financial services or banking services or investment services or trading services, you're going to have to support Bitcoin. You're probably going to need to support Lightning wallets.

So Bitcoin wallets, Lightning wallets, and then open up the network and you can see extraordinary enthusiasm for those companies that are doing it and extraordinary pressure on those that either don't do it or do it in an incomplete fashion. So what's the summary of all of this? I think the summary is what we see as the emergence of the digital gold asset class. When we first bought Bitcoin in our first press release, we said we bought Bitcoin because we view it as digital gold. It's harder, smarter, faster, and stronger than gold.

And a lot of people scratched their heads and they weren't sure about it. But if we fast forward a year, Bitcoin is up more than 300%, gold is down 3% or 4%. In a year of political unrest and monetary inflation, gold is neither a hedge against political unrest nor is it a hedged against inflation. Bitcoin is doing the job 10 times better than the S&P index or the NASDAQ index is doing the job.

And at this point, you have all of the Indicia that you would need in order to conclude Bitcoin is digital gold. The regulators are treating it as an asset. It's not going to be banned. It is being brought into the regulatory and public policy framework and recognized as an institutional-grade asset.

There are institutional ETFs for that asset. We see examples of why it's better than gold, the fact that we can move it faster. We saw 3 million people able to access Bitcoin via Lightning in a matter of weeks. So we see the speed, we see that it is faster.

We see that it is smarter. I can deliver it via the iOS and Android apps. We see that it is stronger. We can do -- there's no way you could have actually given $30 worth of gold to everybody in El Salvador in three weeks.

You probably couldn't do it all. If you gave it $30 of gold, the transaction costs would have been like a markup of like 37%, right. So you just can't do it. And so what we see here is Bitcoin is meeting that requirement, how do we give a store value asset to millions and millions of people on a mobile phone.

And how do we make it harder than gold? Well, I think 130% a year improvement for a decade is one indicator, but, you know, 350% improvement in a year is even a better indicator. So what we see is a new asset class forming. And a year ago, I think it would be reasonable to say, I'm not sure if institutions will embrace this. But I think right now, if you look at the public results that have been published by Coinbase in 8,000 or 9,000 institutional accounts they have and if you look at the actions of the SEC and improving ETFs and if you look at the words of our regulators in front of Congress in congressional testimony and if you look at the words of our senators and if you listen to the words and read the testimony of our central bankers, I think it's very, very clear.

This is a -- it's a scarce digital store of value asset. Yes, it may be viewed as speculative, and that's OK. And it is volatile, and that's OK. But my view here is it's volatile because it's integrated into the entire crypto-economy, and there's a lot of ambiguity and a lot of leverage in the crypto economy that is yet to be worked out.

And as regulatory clarity comes to the crypto economy and as we normalize many of these assets, and we resolve the question of the handling of stable coins and the handling of other tokens, as these things get worked out and as we resolve the question of how much leverage can you use to trade this and where all of those things are going to lessen the volatility. And until that time, you know, the volatility is probably an asset, it's probably helping with the adoption. The volatility is attracting the best and the brightest minds of the entire generation to Bitcoin. If you're a 20-something with a little bit of capital trading in Singapore, right, you're not going to trade gold versus silver.

You're not going to trade commodities. You're not going to trade equities. You're going to trade in the crypto market because there's opportunity there. And the volatility itself is an opportunity to arbitrage.

And as this complexity gets worked out, the entire asset class strengthens. So I guess you could summarize that as we feel like everything is evolving according to plan, as well as it could evolve. And everything that's happened is pretty much as expected, you have an emerging asset class that the world needs. And the world is struggling to figure out how to bring it into its public policy frameworks so that we can all use it in order to build the 21st entry cyber economy, where it's pretty clear we need a digital asset like Bitcoin because it is smarter, it is faster, it is stronger, it is harder.

I can program it into any computer. I can deliver it to billions of phones. I can move it at the speed of light. I can't do that with any other bearer asset.

And I can't do that in the conventional 20th century banking system. So Bitcoin is the future. And everything that happened in the past quarter, I think, is bullish for the asset class and makes us even more optimistic about our business strategy here. So with that, I think we're ready for questions.

Jeremy Price

All right. Thank you, Michael. We do have a lot of good questions. So we're going to try and get through as many as we can.

And with no further ado, here we go. For Phong: "Non-GAAP operating margin in Q3 came in above expectations for -- of 18% to 19%. Could you walk us through the main drivers of the margin outperformance? Thank you and congratulations."

Phong Le -- President and Chief Financial Officer

Thank you, Jeremy. I would say it's one major outperformance driver. We had a tough compare going into this quarter. So I think folks thought that our revenues were going to be down a little bit.

In fact, our total revenues were up. Our software revenues were up substantially versus 2019. We had good consulting results. So if I was to net it out, you know, revenue growth is good.

Software business is going well. There is incremental customer demand for the MicroStrategy platform. And it all creates a good momentum for us as a business. And of course, we've been able to keep our costs and order as much as we can too.

So that's what's driving the margin outperformance right now.

Jeremy Price

All right. Thanks, Phong Le. Michael, "Some Bitcoin miners are getting interests from asset managers who are evaluating financing their own mining operation inside larger miners with capacity. They believe that the returns on self-mining of the five years might be greater than buying spot and [Inaudible] What are your views here?"

Michael Saylor -- Chairman and Chief Executive Officer

So, ask the question again. I want to -- like my views of what versus what?

Jeremy Price

"Bitcoin miners are getting interests from asset managers who are evaluating financing their own mining operations inside of larger miners with capacity. They think that the returns on self-mining over five years might be greater than buying spot [Inaudible]

Michael Saylor -- Chairman and Chief Executive Officer

So the question is, is it better to buy Bitcoin or buy a Bitcoin miner, is that what that means?

Jeremy Price


Michael Saylor -- Chairman and Chief Executive Officer

So, yeah. I think that it's a good idea to buy Bitcoin. And it's a good idea to buy a Bitcoin miner if you buy the right miner at the right price, right? And so I can't really give you a -- I can't say that buying any miner at any price is always better than buying Bitcoin. I mean -- but I wouldn't say -- what I would say is I think the Bitcoin miners are in a great industry.

It's a good business. There's a natural limit on how much hash power can be delivered because one constraint is the supply of SHA256 miners. And the second constraint is the time it takes to build out an engineered mining facility. And so if you were -- if you wanted to go and create a Bitcoin miner today, you might have to wait 12 to 24 months to get the mining rigs.

And then you might have to struggle for 12 to 24 months to build out your facility. And so it's going to take time for that hash power to come online. And in that time, that means if you have a mining operation with good hash power, right, you're in a great position. And of course, their business was made better by the China exodus as well, which limited the hash power.

I think that mining is a good business, but, you know, I can't tell you how to allocate your investment capital. I pointed out before, I think there are some investors that couldn't buy the property if they wanted to. I think there are other investors that have an agenda to buy companies. And so they need to buy miners.

I think there are some investors that have an agenda to buy securities in general and/or they need to. So I think that right, there's demand for all these things. I think there's a demand for minor equity. I think there's a demand for minor debt.

Like I think the miners can issue debt, and there's a market for that. And I think there's a market for Bitcoin. And I think that all of those markets will grow, and those options are going to increase in the coming few quarters.

Jeremy Price

Thanks, Michael. Phong, "Can you provide" -- sorry, "Nice to see the sustained strong R&D spend. Can you provide more detail on where you're focusing these investments? And how should we expect MicroStrategy's platform to evolve in the coming years? Is there any of your R&D spend being invested in Bitcoin and blockchain-related research?"

Phong Le -- President and Chief Financial Officer

Yeah. So first of all, we're going to continue to grow R&D spend. It's the right place to invest. We'll find synergies and be able to reduce costs in other areas like sales and marketing and G&A, invest that in R&D and grow our margins.

If you look at the last year versus this year, we've tripled the amount of money we spent in R&D and cloud. So building out a full multi-tenant containerized cloud platform. We've done that. Now extending that to multi-cloud and extending that to all of our customers is a big focus of ours, and we're seeing good momentum there.

Improving or investing more in security. We're the most secure enterprise-grade BI platform in the world. A lot is changing in that area. And so we're going to continue to invest there.

We've tripled our investment in security in the last year, continuing to build out OEM capabilities so that you can embed our software and any other piece of software and any client application and making sure that our software is open. That's a big area of investment. We've doubled our investment in that area in the last year. And of course, probably the biggest area of investment we continue to work on is making our software intuitive, improving the client user experience.

So innovations like Hyperintelligence and more extensions beyond that augmented capabilities. So we're the No. 1 enterprise-grade BI platform in the world, and we expect to continue to do so through R&D investments.

Jeremy Price

Thanks, Phong. Let's do one more. We've had quite a few questions about this. So let's start with Mike, and I'm sure Phong you have something to say.

"How should we think about the underlying value of Bitcoin versus the market cap of the company? And what appears to be a shrinking premium over the quarter?"

Michael Saylor -- Chairman and Chief Executive Officer

I think that clearly the stock price will fluctuate and the market determines that. Our view is we're going to grow the enterprise software business using intelligent investments and making intelligent investments in the product line. And we're going to grow the Bitcoin business by acquiring more Bitcoin via accretive method, so via intelligent financings from time to time. And, you know, the marketplace will react to those things, and it will react to other things in the market that are out of our control.

Phong Le -- President and Chief Financial Officer

And the only thing I might add to that is the stock price, I agree it is what it is, but we offer something that's differentiated and unique. We have a business intelligence company that's growing, that's the best enterprise platform in the world and produces material and growing cash flow, we can invest that in Bitcoin. We can take our Bitcoin strategy and invest additional capital through raising debt, raising equity. And our Bitcoin strategy makes us more known in the marketplace, increases our pipeline, grows our popularity and in turn, makes our enterprise software company stronger.

So it's a virtuous cycle, and I think that's something that's quite unique compared to just buying spot Bitcoin or investing in a stand-alone software company.

Jeremy Price

Thanks, Phong. I thank everyone for their questions. I'm going to turn it back over to Michael for our closing remarks.

Michael Saylor -- Chairman and Chief Executive Officer

OK. Well, thank you. I want to thank everybody for being with us today. And we appreciate your support for our shareholders in the audience.

We couldn't do this without you. We're really as enthusiastic as ever about both our enterprise software strategy and our Bitcoin strategy. We'll continue to execute on both of those in the coming quarter, and we'll look forward to seeing you again in 12 weeks when we report back how things went. Till then, have a good year and a good holiday season.

Duration: 0 minutes

Call participants:

Jeremy Price

Michael Saylor -- Chairman and Chief Executive Officer

Phong Le -- President and Chief Financial Officer

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