Coinbase Global Inc.
COIN -8.09%
posted a loss of $2.43 per diluted share in the third quarter, compared with earnings of $1.62 a share a year ago, as its main revenue driver—crypto trading—remains depressed in the wake of the market’s crash.
The second-largest crypto exchange lost $545 million—its third unprofitable quarter in a row—on total sales of $590 million in the quarter, down from a profit of $406 million on $1.3 billion of total sales the same quarter last year.
The numbers were slightly worse than expected. Analyst consensus was for a loss of $2.38 a share on sales of $641 million, according to FactSet. However, shares were rising in late trading, up 4.4%.
The company itself characterized the quarter as mixed in a letter to shareholders, noting that transaction revenue was hurt significantly by conditions in the crypto market as well as in the broader economy. The Federal Reserve’s interest-rate increases have crushed the most speculative parts of the market.
Coinbase went public in 2021 when cryptocurrencies were riding a multiyear surge and the price of bitcoin rose to nearly $70,000. For all of 2021, Coinbase earned $3.1 billion. The crypto market peaked in late 2021 before diving lower. In the first three quarters of 2022, the company has now lost a collective $2 billion.
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What drives the most revenue at Coinbase is trading, and the company’s total trading volume fell to $159 billion in the third quarter from $327 billion a year ago.
The split between individual and institutional trading volume became more lopsided. Institutional trading volume comprised 84% of volume at $133 billion compared with just $26 billion for retail. In the third quarter of 2021, institutional volume $234 billion comprised 78% of total volume, compared with $93 billion for retail.
However, the company still gets most of its revenue from retail traders. Retail-trading transaction revenue totaled $346 million in the third quarter compared with just $19.8 million in institutional-trading revenue. A year ago, retail-trading revenue totaled $1 billion and institutional $68 million.
The company reported about $101 billion in assets on its platform, split evenly between retail and institutional accounts, both with $51 billion. In the third quarter of 2021, it had $255 billion in assets on the platform.
A key measure of customer engagement, monthly transacting users, or MTU, rose to 8.5 million in the third quarter from 7.3 million a year ago, but fell from 9 million in the second quarter. Monthly transacting users are users who make at least one trade a month.
The company laid off 18% of its staff in June, the first round of job cuts since its founding in 2012.
The company has been working to diversify its revenue streams. In the third quarter, $366 million of its revenue came from trading, and $211 million from other sources, including custodial fees, interest income and earning interest by “staking” digital assets on other platforms.
Interest income was the largest part of the other revenue streams. Coinbase earns interest from its partnership with Circle Internet Financial’s USD Coin stablecoin and on customer fiat balances. Coinbase earned $102 million in interest income last quarter, up from $8.4 million a year ago.
That was almost twice what D.A. Davidson analyst Chris Brendler expected, and he sees the stablecoin partnership in particular as a big revenue driver for Coinbase. USD Coin has about $38 billion of its reserves held in short-term U.S. government debt. With rising interest rates, those bonds are producing more income.
USD Coin’s revenue from its stockpile of government-backed bonds is likely to be about $1.3 billion annually, based on current interest rates, according to JPMorgan analyst Kenneth Worthingon. The firm estimates Coinbase will get about 35% of that.
Coinbase’s stablecoin business is probably the most underappreciated part of its operations, Mr. Brendler said. “I’ve gotten a lot more optimistic because of interest rates,” he said.
Coinbase shares were up in late trading, continuing a volatile ride for the stock this year. Year to date, the stock is down 78%, and it has been heavily shorted since May. About 28 million of its 225 million shares outstanding are pledged to short sellers, up from only about 6 million in April.
Shares closed Thursday down 8.1% at $55.80.
Write to Paul Vigna at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Coinbase Global Inc.
COIN -8.09%
posted a loss of $2.43 per diluted share in the third quarter, compared with earnings of $1.62 a share a year ago, as its main revenue driver—crypto trading—remains depressed in the wake of the market’s crash.
The second-largest crypto exchange lost $545 million—its third unprofitable quarter in a row—on total sales of $590 million in the quarter, down from a profit of $406 million on $1.3 billion of total sales the same quarter last year.
The numbers were slightly worse than expected. Analyst consensus was for a loss of $2.38 a share on sales of $641 million, according to FactSet. However, shares were rising in late trading, up 4.4%.
The company itself characterized the quarter as mixed in a letter to shareholders, noting that transaction revenue was hurt significantly by conditions in the crypto market as well as in the broader economy. The Federal Reserve’s interest-rate increases have crushed the most speculative parts of the market.
Coinbase went public in 2021 when cryptocurrencies were riding a multiyear surge and the price of bitcoin rose to nearly $70,000. For all of 2021, Coinbase earned $3.1 billion. The crypto market peaked in late 2021 before diving lower. In the first three quarters of 2022, the company has now lost a collective $2 billion.
SHARE YOUR THOUGHTS
What is your outlook on Coinbase? Join the conversation below.
What drives the most revenue at Coinbase is trading, and the company’s total trading volume fell to $159 billion in the third quarter from $327 billion a year ago.
The split between individual and institutional trading volume became more lopsided. Institutional trading volume comprised 84% of volume at $133 billion compared with just $26 billion for retail. In the third quarter of 2021, institutional volume $234 billion comprised 78% of total volume, compared with $93 billion for retail.
However, the company still gets most of its revenue from retail traders. Retail-trading transaction revenue totaled $346 million in the third quarter compared with just $19.8 million in institutional-trading revenue. A year ago, retail-trading revenue totaled $1 billion and institutional $68 million.
The company reported about $101 billion in assets on its platform, split evenly between retail and institutional accounts, both with $51 billion. In the third quarter of 2021, it had $255 billion in assets on the platform.
A key measure of customer engagement, monthly transacting users, or MTU, rose to 8.5 million in the third quarter from 7.3 million a year ago, but fell from 9 million in the second quarter. Monthly transacting users are users who make at least one trade a month.
The company laid off 18% of its staff in June, the first round of job cuts since its founding in 2012.
The company has been working to diversify its revenue streams. In the third quarter, $366 million of its revenue came from trading, and $211 million from other sources, including custodial fees, interest income and earning interest by “staking” digital assets on other platforms.
Interest income was the largest part of the other revenue streams. Coinbase earns interest from its partnership with Circle Internet Financial’s USD Coin stablecoin and on customer fiat balances. Coinbase earned $102 million in interest income last quarter, up from $8.4 million a year ago.
That was almost twice what D.A. Davidson analyst Chris Brendler expected, and he sees the stablecoin partnership in particular as a big revenue driver for Coinbase. USD Coin has about $38 billion of its reserves held in short-term U.S. government debt. With rising interest rates, those bonds are producing more income.
USD Coin’s revenue from its stockpile of government-backed bonds is likely to be about $1.3 billion annually, based on current interest rates, according to JPMorgan analyst Kenneth Worthingon. The firm estimates Coinbase will get about 35% of that.
Coinbase’s stablecoin business is probably the most underappreciated part of its operations, Mr. Brendler said. “I’ve gotten a lot more optimistic because of interest rates,” he said.
Coinbase shares were up in late trading, continuing a volatile ride for the stock this year. Year to date, the stock is down 78%, and it has been heavily shorted since May. About 28 million of its 225 million shares outstanding are pledged to short sellers, up from only about 6 million in April.
Shares closed Thursday down 8.1% at $55.80.
Write to Paul Vigna at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8