Coinbase Reports Disappointing Q3 Earnings
On Wednesday, Coinbase announced its Q3 earnings, which fell short of market expectations. The cryptocurrency exchange saw its stock decline by 4.8% in after-hours trading, settling at $201.50 per share. This drop can be largely attributed to a slowdown in trading activities in the broader cryptocurrency market.
Financial Performance Overview
During the third quarter, Coinbase generated a total revenue of $1.2 billion, which was below FactSet’s forecast of $1.26 billion. The company reported earnings per share (EPS) of $0.28, significantly lower than the anticipated $0.45. Furthermore, Coinbase’s adjusted EBITDA stood at $449 million, also coming in under expectations compared to the projected $469.2 million.
Revenue Breakdown
Coinbase experienced a 27% decline in transaction revenue from the previous quarter, totaling $573 million. Additionally, subscription and services revenue decreased by 7% quarter-over-quarter, bringing in $556 million, primarily due to a drop in average prices of cryptocurrency assets.
Positive Trends in Stablecoin Revenue
Amidst the challenges, there was a silver lining with stablecoin revenue increasing by 3% quarter-over-quarter, reaching $247 million. This growth was primarily a result of higher average balances of USDC on Coinbase’s platform, indicating an increase in user engagement in stablecoin transactions.
Strategic Shift Towards Diversification
In the company’s shareholder letter, Coinbase acknowledged facing “softer” market conditions. Nonetheless, there was notable growth in key sectors such as staking, on-platform USDC holdings, and custody services. CEO Brian Armstrong highlighted the company’s efforts to diversify revenue sources away from volatile transaction fees and towards more stable subscription and service revenues. “We’ve made a big effort to diversify our revenue over the years,” Armstrong stated during the earnings call.
Financial Resilience and Stock Repurchase Initiative
As of the end of Q3, Coinbase reported holding $8.2 billion in cash, cash equivalents, and USDC, marking an increase of $417 million from the previous quarter. In a bid to enhance shareholder value, the company also announced a $1 billion stock repurchase program.
Optimistic Outlook for Q4
Looking ahead, Coinbase is projecting a more active fourth quarter, with subscription and services revenue expected to fall between $505 million and $580 million. However, the company remains cautious due to potential headwinds, including a 10% decline in Ethereum’s average price in October compared to the previous quarter and possible interest rate changes impacting the market.
Base Achieves Milestones and Leadership Criticism
Recently, Coinbase’s Ethereum layer-2 solution, Base, briefly surpassed other blockchains in stablecoin transaction volume, achieving this feat on the same day it recorded a new high for transaction counts. Additionally, Armstrong has voiced strong criticism of the US Securities and Exchange Commission (SEC), advocating for significant changes in its leadership and calling for the next chair to retract “frivolous” lawsuits and issue a public apology for the regulatory impact on the US crypto industry.