Coinbase Global, Inc.’s (NASDAQ: COIN) released weak 2Q 2022 earnings results earlier this week. A dramatic decline in cryptocurrency prices caused corresponding sharp falls in trading volume, customer assets on Coinbase’s platform, and adjusted EBITDA. Indeed, the company’s adjusted EBITDA fell to a loss of US$151 million from positive US$20 million in 1Q 2022, and positive US$1.205 billion in a very different digital currency environment in 4Q 2021.
Transaction, or fee-based, revenue plummeted in 2Q 2022 to US$655 million from US$1.013 billion in 1Q 2022 and from US$2.277 billion in 4Q 2021. Coinbase charges a flat 1% fee on all retail cryptocurrency transactions and a much smaller fee for institutional trades. As a result, some of the sharp reduction in revenue may be ascribed to lower crypto prices, but a large portion is simply due to lower customer activity.
| (in millions of US dollars, except otherwise noted) | Full-Year 2022E | 2Q 2022 | 1Q 2022 | Full Year 2021 | 4Q 2021 |
| Monthly Transacting Users, or MTUs (millions) | 9.2 | 9.2 | 8.4 | 11.4 | |
| Retail Trading Volume | $46,000 | $74,000 | $535,000 | $177,000 | |
| Institutional Trading Volume | $171,000 | $235,000 | $1,136,000 | $371,000 | |
| Trading Volume | $217,000 | $309,000 | $1,671,000 | $547,000 | |
| Retail Assets on Platform | $47,000 | $123,000 | $141,000 | $141,000 | |
| Institutional Assets on Platform | $49,000 | $134,000 | $137,000 | $137,000 | |
| Total Assets on Platform | $96,000 | $256,000 | $278,000 | $278,000 | |
| Total Market Capitalization of All Crypto Assets | $2,321,000 | $2,321,000 | |||
| % on Coinbase Platform | 9.9% | 11.2% | 11.5% | 11.5% | |
| Transaction Revenue | $655 | $1,013 | $6,837 | $2,277 | |
| Subscription/Services Revenue | $147 | $152 | $518 | $213 | |
| Net Revenue | $803 | $1,165 | $7,355 | $2,490 | |
| Retail Transaction Fee Revenue/Retail MTUs | Low $20’s | $29 | $64 | ||
| Transaction Expenses as % of Net Revenue | Low 20% range | 21% | 24% | 17% | 20% |
| Sales & Marketing Expenses as % of Net Revenue | $500 to $600 million | 18% | 17% | 9% | 10% |
| Technology and Development Plus G&A Expenses | $4,125 | $1,079 | $984 | $2,201 | $757 |
| Adjusted EBITDA | ($151) | $20 | $4,090 | $1,205 | |
| Operating Cash Flow | ($3,864) | ($830) | $10,730 | $2,993 | |
| Net Income – Recurring | ($647) | ($430) | $3,624 | $840 | |
| Cash, Including Digital Assets | $5,682 | $6,116 | $7,123 | $7,123 | |
| Debt – Period End | $3,483 | $3,486 | $3,491 | $3,491 | |
| Shares Outstanding (millions) | 261.9 | 261.9 | 261.9 | 261.9 |
Unfortunately, early third quarter operating results suggest transaction revenues could fall even further in this period. Trading volume in July was US$51 billion, about US$20 billion below the average monthly volume in the slow 2Q 2022.
In early August, Coinbase announced it had formed a partnership with BlackRock, Inc. (NYSE: BLK), the world’s largest asset manager. Under the agreement, BlackRock’s institutional customers would gain direct access to crypto trading. Given the small fees that Coinbase charges such large customers, the pact could create some future incremental revenue for Coinbase, but the magnitude of that bump may be fairly small.
Coinbase slashed some of its discretionary expenses in 2Q 2022. For example, sales and marketing expenses were US$141 million versus US$200 million and US$245 million in the previous two quarters. Furthermore, the company expects these costs to average only around US$100 million per quarter in the second half of the year.
However, Coinbase’s technology and development and G&A expenses aggregated to $1.079 billion in 2Q 2022, up from US$984 million in 1Q 2022. The company did cut its full-year 2022 forecast for these costs to US$4.0 billion-US$4.25 billion from US$4.25 billion-US$5.25 billion, but this still represents a very high level of spending.
Coinbase continues to grapple with the potential implications of a civil suit brought by the SEC against three men, one a former Coinbase manager. The suit contends that nine cryptocurrencies, including seven that can be bought and sold on Coinbase’s platform, are actually securities that should have been registered with the SEC under the Securities Act of 1933 (1933 Act). The SEC contends they are securities because “each of the crypto asset securities were offered and sold by an issuer to raise money that would be used for the issuer’s business.”
Coinbase has soared about 70% over the last two weeks as investors have aggressively bought the most speculative securities. Its enterprise value is around US$22 billion even though its combined adjusted EBITDA over the first half of 2022 was negative US$131 million, and business trends may be even worse in 3Q 2022 than 2Q 2022. Furthermore, the SEC’s questions about the company’s business practices adds to the uncertainty.
Coinbase Global, Inc. last traded at US$85.60 on the NASDAQ.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
