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Coinbase beats revenue expectations, but will its struggles end anytime soon?

Last week, Coinbase reported its Q4'22 results – while the exchange has been experiencing a period of financial hardships, it continues to pivot to subscriptions and generate income through charging fees on transactions.
The subscription and service revenues grew 34% to $283 million, accounting for almost 50% of overall revenue for the quarter -- keeping the company afloat.

Sara Khairi | March 02, 2023

Coinbase beats revenue expectations, but will its struggles end anytime soon?

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In today's edition:

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Coinbase beats revenue expectations, but will its struggles end anytime soon?

Are AI-powered loans the saving grace for Upstart?

Coinbase beats revenue expectations, but its shrinking user base shows the problems are unlikely to end soon

Coinbase's Q4 2022 results show that despite hardships, the exchange managed to stay afloat, thanks to subscriptions

by SARA KHAIRI

Coinbase, the second-largest crypto exchange, reported its Q4'22 results on Tuesday and even though it beat on revenue and earnings, the firm's user base continues to dwindle.

Coinbase reported an adjusted loss of $2.46 per share for the quarter, which beat analyst expectations.

Total revenue came in at $605 million for the quarter, 75% lower than the $2.5 billion reported in the same period the previous year.
Transaction volume on the platform fell 12% quarter-over-quarter to $322 million.
Monthly transacting users were 8.3 million during the fourth quarter, down from 8.5 million in the prior period.
Adjusted EBITDA was reported at a deficit of $124 million.
Operating loss was $557 million in the three-month period on a GAAP basis (net income).

"Empty calories drive 'beat' as interest income is up $80mn Q/Q. This is unlikely to be sustainable and is non-core to COIN, in our view. More importantly, total take rate continued to decline in 4Q as institutional volumes become an ever bigger piece of the pie, and retail investors remain largely uninvolved," said Dan Dolev, senior analyst at Mizuho.

The first half of 2022 was the year crypto came crashing down to Earth during this crypto winter. The overall crypto market capsharply declined 64%, or $1.5 trillion during 2022, which strongly impacted Coinbase’s total trading volumes and transaction revenues, falling 50% and 66% YoY.

The crypto market downturn combined with economic headwinds and inflation is causing Coinbase's active user base to shrink.

The US Securities and Exchange Commission recently penalized crypto exchange Kraken for $30 million for offering crypto staking. This suggests the SEC is at odds with staking and may likely continue to crack down on any cryptocurrency exchanges that offer it to retail customers. This may collide with Coinbase's revenue that it generates from crypto staking -- which rose 1% to $62 million in Q4 2022.

After cutting 18% of its global staff in June last year, the exchange planned on building up its presence in Europe to fuel growth in new users and revenue as operations remained unfruitful in the home country.

Another reason for shifting away the business volume from the US is due to facing a high level of regulatory-related uncertainty and expanding regulatory framework after the FTX fiasco.

"Disappointingly, we are not seeing regulators necessarily welcoming transparency and public participation in their rule-making. United States agencies, in particular, are demonstrating a disjointed stance regarding crypto that is pushing the industry overseas," said CEO Brian Armstrong.

In January 2023, the company ceased its global projects and pulled the plug on its Japan operations and new creator drops for its NFT marketplace -- without providing further clarity on what lies ahead for this plan of action.

In the same month, Coinbase once again announced it would slash 20% of its workforce in a move to preserve cash during the prolonged crypto market downturn and as the market continues to deal with the fallout of the collapse of Luna and the FTX debacle.

"The FTX collapse and the resulting contagion has created a black eye for the industry,” said Armstrong.

Coinbase's majority portion of revenues has been historically generated from trading fees, subscriptions, and services, which have emerged as its redeeming feature. While the exchange has been experiencing a period of financial hardships, it continues to pivot to subscriptions and generate income through charging fees on transactions. It also generates earnings through providing custody of digital assets, and staking, among other services.

The subscription and service revenues grew 34% to $283 million, accounting for almost 50% of overall revenue for the quarter, mainly from interest income of $182.2 million -- keeping the company afloat.

Coinbase stock has plummeted approximately 69%in a year. The stock was down 6.1% Wednesday and 13% over the past week, attributable to a 4% dip in the price of bitcoin at the time.

In its shareholder letter, CFO Alesia Haas affirmed that crypto markets have improved so far in Q1 2023 compared to Q4 2022, which enabled the firm to generate $120 million in transaction revenue in January 2023.

Going forward, CEO Armstrong said that "policy is my top priority this year". While Coinbase integrates its cost reduction steps entailing layoffs or capitalizing on its subscription and services -- investors are looking for clarity on if the firm's struggles will come to an end anytime soon.

Market recap

Fintech stocks saw a sharp decline over the past week as layoffs continue to trend downward.

Fintech stocks saw a sharp dip as higher interest rates continue to negatively affect earnings and stock prices, and recession fears caused the housing market to continue its cool down.

Oportun - down 11% to $6.15 per share

Oportun continues to narrow its credit standards, limit expenses, and change its approach to returning borrowers as the economic environment adversely affects the company's target customer base.
The firm is implementing a chain of strategies to streamline its operations, including reducing its headcount by 10%, impacting approximately 155 employees, and cutting down its expenditures on external contractors.

LendingTree - down 8% to $39.76 per share

LendingTree revenue has been strongly impacted in its mortgage lending business, resulting in loan defaults and reduced demand for loans due to higher interest rates as the housing market slows.