The crypto market is down… and so is Coinbase, America’s biggest crypto exchange.
The company reported net revenue of $1.165 billion (-27%) in the quarter, which was down both QoQ and YoY. Coinbase reported a $430 million loss in net income, or a loss of $1.98/share. Adjusted EBITDA came out to a gain of $20 million.
All of the figures were below analysts’ estimates, but Coinbase indicated that the results were within the company’s outlook. Perhaps most notable was a stat pulled out in the leading graphic of the company’s shareholder letter which showed that Coinbase spent more on its tech & development, sales & marketing, and general/administrative expenses than it made in revenue.
So, what gives? Well, retail-contrived transaction revenue commands a massive impact on Coinbase’s quality of earnings: it was $965 million of the company’s $1.01 billion in transaction revenue. That’s because the fee structure for consumers — e.g: a $2.99 fee on a $100 trade — is multiples higher than the fee structure for more seasoned traders and institutions, which prices trade fees in basis points.
So, when retail investors stop trading… it’s bad for Coinbase. And in Q1 2022, that’s what happened. Retail buying volume only made up $74 billion of the company’s $309 billion in trade volume, which was already down -44% YoY. That was in spite of a +50% YoY rise in monthly transacting users (MTUs).
Even though institutions kept their foot on the gas in terms of volume traded in the quarter, they only helped Coinbase generate $47 million in transaction revenue in the quarter.
The remainder of the company’s $151.9 million in revenue came from subscription and services revenue. That counts as the staking rewards cut Coinbase takes, “custodial fee revenue,” or revenue from Coinbase Earn campaigns, interest income, and “other” revenue that the company does not categorize.
A lot of $COIN‘s struggles can be attributed to volatility and some newfound weakness in the crypto markets. Crypto’s brightest days feel distant now, thanks to the Fed’s crack team of macroeconomists and interest rate lever-pullers. 🤷 And the more that the Fed, and other central banks, pull their levers, the lower it seems crypto will go. 📉
In the immediate aftermath of the report, Coinbase also tried to clear up concerns around a new disclosure that investors took to mean that the company faced bankruptcy risk. Investors construed the disclaimer to mean that Coinbase could seize assets from users in the case that they went under, which would — for obvious reasons — be very bad. It reads pretty plainly, but Coinbase CEO Brian Armstrong insists that they are not concerned about bankrtupcy.
That turned a bad report into a really bad compound sandwich of problems. $COIN fell more than 20% on the day of the earnings call before booking an additional -26% dip. As of this writing, it was sitting at a $12 billion market cap.