Coinbase Global Inc. (NASDAQ: COIN) reported underwhelming Q3 2024 financial results on Wednesday, missing revenue and earnings expectations, which sent shares sliding by 7% in after-hours trading.
The trading platform posted Q3 revenue of $1.2 billion, down 5% year-over-year and 17% from Q2, missing Wall Street’s consensus estimate of $1.26 billion. Breaking it down, the sharp decline in transaction revenue, which fell 27% quarter-over-quarter to $573 million, is particularly concerning. This drop reflects an 18% decline in trading volume across U.S. spot markets, attributed to a 5% quarter-over-quarter drop in crypto asset volatility, a key driver of trading volume.
Compared to Q3 2023, when transaction revenues were $288.6 million, the quarterly results highlight growth. However, the volatility and lack of significant trading traction this quarter emphasize how much the exchange’s reliance on trading fees subjects it to market whims.
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Subscription and services revenue, which includes products like staking and custodial fees, declined by 7% quarter-over-quarter, down to $556 million. Although stablecoin incentives and on-platform USDC balances supported this segment, blockchain rewards saw a steep 16% decline quarter-over-quarter, which Coinbase attributed to lower crypto prices. Stablecoin revenue increased slightly, up 3% from Q2, yet, on an annual basis, total subscription and services revenue rose by 66%, driven by increased adoption of USDC and expanded international markets.
The company’s profitability in Q3 came under pressure, with a reported net income of $75 million, which, although improved from a $2 million loss in Q3 2023, represents a considerable decline from the $36 million net income in Q2. A major component in this decline was the $121 million pre-tax loss on crypto investments, mostly unrealized, reflecting the impact of declining crypto asset prices since the prior quarter.
Coinbase’s Q3 earnings per share (EPS) came in at $0.28, well below the $0.45 analysts expected, representing a significant miss. Adjusted EBITDA for the quarter was $449 million, marking a decline from $596 million in Q2. Sequentially, Adjusted EBITDA shrank by 25%, reflecting the strain of lower revenues coupled with slightly higher operational expenses. Total operating expenses decreased 6% quarter-over-quarter but remained high at $1.0 billion, comprising around 86% of the quarter’s net revenue.
Coinbase’s expense structure remains one of its most significant obstacles. Transaction expenses fell 10% to $172 million, mirroring decreased trading activity. Yet, technology and development costs increased by 4% from Q2, and general and administrative expenses grew by 3%, totaling $330 million. Stock-based compensation, a recurring cost tied to employee retention, remains high, totaling $248 million for Q3.
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Sales and marketing expenses were almost flat, totaling $165 million. While Coinbase scaled back performance marketing given unfavorable market conditions, it simultaneously increased USDC rewards as incentives, suggesting rising costs in one of the firm’s core product areas.
The firm reported a solid $8.2 billion in cash, cash equivalents, and USDC reserves, up by $417 million from Q2. However, Coinbase’s newly announced $1 billion stock buyback program raises questions about whether repurchasing shares is the optimal use of capital at a time when the company faces substantial operational challenges. The program has no set expiration and allows repurchases based on market conditions.
While Vice President of Investor Relations Anil Gupta framed the buyback as “a signal of confidence” in Coinbase’s future, critics may view it as deflection from pressing issues in core business areas.
Looking ahead, Coinbase projects Q4 subscription and services revenue to range between $505 million and $580 million, reflecting anticipated price declines in key assets like Ethereum. The company estimates Q4 technology and administrative expenses to range from $690 million to $730 million. Sales and marketing costs are also expected to rise, primarily due to expanded USDC rewards and seasonal brand spending, including its new NBA partnership.
Coinbase last traded at $211.74 on the NASDAQ.
Information for this story was found via Coindesk, Quartz, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
