This morning, after the bell rang after the bell, the biggest U.S. cryptocurrency exchange Coinbase announced their second-quarter earnings. For the quarter that ended on the 2nd of September, Coinbase reported net revenues of $802.6 million, and the earnings for each share was -$4.98 (diluted) (diluted), based on net earnings that was -$1.09 billion. Coinbase’s adjusted EBITDA which is a non-GAAP-based metric was -$151 million during the second quarter.
Analysts had anticipated Coinbase to lose $2.65 per share on earnings of $832 million according to the estimates provided with Yahoo Finance. Yahoo Finance. According to these estimations, Coinbase posted a top-and-bottom line loss.
Coinbase shares fell about 10.5 percent during trading hours. Following the announcement of its earnings, Coinbase’s shares are down a bit however it been a bit volatile in the early hours of after-hours trading.
The results of Q2 at Coinbase
Coinbase’s third quarter saw a significant increase in costs when in comparison to the previous year approximately $500 million the company’s revenue fell sharply. The second quarter saw Coinbase’s revenue dropped by $2.033 billion, to $802.6 million, which is a decrease approximately 60 percent. The increase in expense and a decline in top-line earnings led the company to be in the in the red.
In fact, Coinbase flipped from an operating profit of $874.7 million in the second quarter of 2021, to an $1.04 billion loss on its operating expenses in the first quarter the year. Other expenses, like the cost of interest, brought the company’s net earnings below its operating income figure.
What caused the increase in cost basis of Coinbase? The reason could be traced to the cost of share-based compensation that jumped by $189.3 million in the second quarter of 2021 up to $391.5 million in the latest quarter. Examining other expense categories, R&D costs and G&A costs also increased dramatically in the same time that marketing and sales expenses decreased by approximately $45 million in comparison to the same time last year.
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Coinbase is still a thriving company, as evident from a first look at its balance sheet. But the company’s cash and equivalents have dropped by $7.12 billion as of the close of 2021, to $5.68 billion at the close of the second quarter of 2022. Coinbase also has customer cash at $7.18 billion (off from $10.53 billion at the close of 2021) in addition to, more especially, $361.7 million worth of the USDC stablecoin. This is a significant increase from less than $100 million as of the close of the year.
Crypto context
In general, cryptocurrency trading activity has decreased for all platforms, and this has affected Coinbase’s primary income stream (transaction costs.) The total volume of trading on Coinbase decreased between $309 billion and $217 billion during the second quarter of 2018, a 30% decline from Q1 2022. The reason for this is the decrease in monthly transaction users (MTUs) which dropped to 9 million, down from 9.2 million in the same period.
“The current downturn came fast and furious, and we are seeing customer behavior mirror that of past down markets,” the company wrote in the Q2-2022 shareholder letter to shareholders..
In the note, Coinbase noted that its primary retail customers are trading less. This means that it’s MTU mix has shifted towards other activities that are not trading like stakes, according to the company in its letter, acknowledging that such “non-investing” activities are less profitable in terms of earnings they generate per user. The company attributes the slump in trading partly due to the high proportion of BTC and ETH users who hold on to their funds instead of “selling into market volatility.”
Despite the firm belief of Coinbase in the HODLers The company wasn’t protected from the general decline in cryptocurrency prices in the 2nd quarter. Assets on the platform decreased in value, falling by nearly 63% from the previous quarter’s $256 billion up to $96 billion. The decrease in assets on the platform wasn’t due solely to prices falling, butCoinbase also witnessed net outflows during Q2 mostly driven by organizations “selling their crypto for fiat,” according to the letter from Coinbase.
Retail and institutional trading revenues declined during the quarter and Q2 saw net transactional revenues from the consumer market of $616.2 million, and from institutional trading revenue of 39 million. These figures were lower than $965.8 millions and $47.2 million from the initial quarter of the year, in addition to being down from the year-ago results for the second quarter in the range of $1.83 billion, and $102.4 million.
The proportion of crypto assets available on Coinbase has changed in a quarter-to-quarter manner and included Bitcoin growing to 44 percent, up of 42% as of the first quarter of 2022 and traditional cash (traditional cash) increasing to 77% from 4% in the prior quarter. However, Ethereum and other crypto assets decreased to 20 percent and 29 percent from Coinbase platform assets in the respective quarters.
Outside of the quarter-end earnings announcement, the decline has been evident in the average daily trading volume which has been mostly flat from July’s around $1.8 billion, despite the increase in the price of crypto in the last month, which is continuously being updated information from Nomics indicates. This is a significant reduction from the average of $3 billion daily volume of trading of Coinbase in March of this year, prior to when “crypto winter” kicked into the high gears.
The news about the company’s financials follows shortly after the announcement of numerous new partnerships during the third quarter of last year, which TechCrunch saw as potential growth avenues for the company in the upcoming quarters. Coinbase has partnered together with BlackRock as the largest asset manager in the world with a portfolio of $10 trillion of assets to offer institutional customers access to crypto. Additionally, it is being included with Meta’s latest plans to incorporate crypto wallets.
The cryptocurrency exchange has been in the news due to several reasons, not just the above mentioned partnerships as well as its controversial and hefty cuts and a freeze on hiring which took place in June. The company was able to retract its promises and laid off 17% of its employees for the purpose of helping “stay healthy during this economic downturn.”