Coinbase revenue falls short of expectations as crypto winter rages – TechCrunch

Today after the bell, the largest US cryptocurrency exchange Coinbase announced its second quarter performance. In the second quarter, Coinbase reported net revenue of $802.6 million and earnings per share of -$4.98 (diluted), based on net income of -$1.09 billion. The company’s adjusted EBITDA, a highly non-GAAP measure, was -$151 million during the period.

Analysts expected the company to lose $2.65 a share on revenue of $832 million, per average. shared by Yahoo Finance. According to these estimates, Coinbase issued a failing top and bottom.

Coinbase shares were down around 10.5% during normal trading hours. Following its earnings announcement, Coinbase stock is down slightly, although it traded somewhat chaotically in the early hours of trading.

Coinbase Q2 results

Coinbase’s quarter included a sharp increase in costs over the prior year period – around $500 million – and a sharp decline in revenue. In the second quarter, Coinbase’s net revenue fell from $2.033 billion to $802.6 million, down about 60%. The combined increase in expenses and decline in turnover plunged the company into the red.

Indeed, Coinbase went from an operating profit of $874.7 million in the second quarter of 2021 to an operating loss of $1.04 billion in the second quarter of this year. Other expenses, including interest charges, pushed its net profit below its operating profit.

What drove the higher cost basis for Coinbase? Part of the cause can be found in stock-based compensation costs, which fell from $189.3 million in the second quarter of 2021 to $391.5 million in its last quarter. In other expense categories, R&D costs and general and administrative expenses also increased sharply, while sales and marketing costs decreased by approximately $45 million from the reporting period. ‘last year.

Coinbase remains a wealthy company, according to a first look at its updated balance sheet. However, the company’s cash and cash equivalents fell from $7.12 billion at the end of 2021 to $5.68 billion at the end of Q2 2022. Coinbase also holds customer cash of $7.18 billion. (up from $10.53 billion at the end of 2021), and notably $361.7 million of the USDC stablecoin, up sharply from just over $100 million at the end of 2021. ‘last year.

Cryptographic Background

In general, crypto trading activity has slowed across all exchanges, which in turn has affected Coinbase’s main revenue stream (transaction fees). driven by a decline in the number of monthly transaction users (MTUs), which fell to 9 million from 9.2 million during the same period.

“The current downturn has come fast and furiously, and we’re seeing customer behavior mirror that of past bear markets,” the company said in its Q2 2022 Shareholder. letter.

In its letter, Coinbase noted that its major retail customers are trading less. As a result, its MTU mix has shifted towards non-trading activities, such as staking, the company wrote, admitting that such “no-investment” activities are less lucrative in terms of the revenue they bring in per user. The company attributed the fall in exchanges, in part, to the high percentage of BTC and ETH users holding onto their assets rather than “selling on market volatility.”

Despite Coinbase’s belief in these HODLers, the company was not immune to the overall decline in crypto prices in Q2. Assets on the platform shrank, down nearly 63%, from $256 billion last quarter to $96 billion. This decrease in assets on the platform was not just due to lower prices, however – the platform also saw sharp outflows in the second quarter, largely due to institutions “selling their crypto for fiat” , according to the Coinbase letter.

Retail and institutional transaction revenue fell in the quarter, with the second quarter seeing net consumer transaction revenue of $616.2 million and institutional transaction revenue of $39 million. These figures were respectively down from $965.8 million and $47.2 million in the first quarter of this year, and also from the second quarter results of the previous year of $1.83 billion. and $102.4 million.

The total percentage of crypto assets on the platform has changed quarter over quarter, with bitcoin dropping to 44% from 42% in Q1 2022, and fiat (traditional cash) dropping to 7% from 4 % in the previous quarter. . Meanwhile, Ethereum and other crypto assets fell to 20% and 29% of Coinbase platform assets, respectively.

Outside of its second-quarter earnings report, the slowdown was also reflected in Coinbase’s average daily trading volume, which in August remained relatively flat from July at around $1.8 billion despite the recovery in trading. Crypto prices over the past month, continuously updated. data from Nomics shows. That’s a steep drop from the $3 billion average daily trading volume on the exchange in March this year, before “crypto winter” kicked into high gear.

The company’s financial news comes quickly after the announcement of several new partnerships in the third quarter, which TechCrunch saw as potential growth levers for the company in the coming quarters. Coinbase has partnered with BlackRock, the world’s largest asset manager, which oversees $10 trillion in assets, to provide institutional clients with access to cryptocurrency. It is also integrated into Meta’s new plans for integrating crypto wallets.

The crypto exchange made headlines for a number of reasons, including the partnerships mentioned above, but also due to its heavy and somewhat controversial layoffs and a hiring freeze that occurred in June. The company retracted its offers and laid off around 18% of its staff to “stay healthy during this economic downturn”.

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