Interpreting Coinbases’s Q1 earnings report: how did the $440 million losses happen?

“Despite a 53% revenue plunge, Coinbase’s expenses are 9% up: facing a severe test now.”

Authors: Hsilung and Hu Tao, ChainCatcher

Illustration: Christopher T.Fong/Protocol

Coinbase today released its first-quarter earnings report in 2022. In the first quarter, its net revenue was approximately $1.165 billion, down 53% than last quarter; the net loss attributable to common shareholders was $429.7 million, showing a turnaround year on year; the monthly active users were 9.2 million, down 19.2% quarter on quarter, and the trading volume was $309 billion, down 43.5% than last quarter.

This dismal quarterly loss of $440 million is undoubtedly embarrassing for Coinbase, the top crypto exchange enjoying the most profitable position in the crypto industry.

So, how did Coinbase aggregate so many losses? What else does this earnings report reveal? ChainCatcher will provide an informative interpretation for it.

Coinbase’s first quarter results

In terms of the revenue structure, the core revenue stream for Coinbase is the trading revenue: the total trading revenue shrank significantly to $960 million this quarter, down 55.5% from $2.277 billion in the fourth quarter of last year.

Coinbase has repeatedly stated to diversify its revenue sources, but among them, the percentage of the trading revenue registers no tangible change from the beginning of last year (85.8%) to its current state (83%).

Specifically, in terms of the market trading volume, Coinbase’s total trading volume in the first quarter was $309 billion, a sharp 43.5% decline than the $547 billion of the fourth quarter last year.

Coinbase’s first quarter results

Among them, only 23% of trading is attributed to retail users, at $74 billion, while institutional users contributed to the majority of the volume, at $235 billion.

Compared to last quarter, both retail and institutional trading volume dropped significantly, basically back to the level of the third quarter of last year. The data shown by one of the world’s largest cryptocurrency exchanges indicates a negative response to market from both institutional and retail traders.

In terms of revenue structure, Coinbase’s trading revenue is still dominated by retail tradings. The data registers $966 million for retail trading revenue and $4,700 for institutions in the first quarter.

Coinbase’s first quarter results

Along with the decline of Coinbase assets on platform in the first quarter were its monthly transacting users. The data shows that the monthly transacting users were 9.2 million, down 2.2 million (-19.3%) from the previous quarter. As a result, both retail and institutional trading volume and revenue in the first quarter hit a new record low since 2021.

At the same time, each of Coinbase’s previously expanded revenue sources saw decrease due to the bear market. In addition, Coinbase’s subscription and service revenue was $151.9 million in the first quarter, down 28.8% from the fourth quarter of last year.

Affected by bear market and other factors, Coinbase suffers sharp drops by over 50% in trading revenue and other aspects. But at the same time, its expenses in enterprise management, technology and development, and other areas are still growing, amounting to $1.72 billion, one of the contributors to its over $ 400 million losses.

Coinbase’s first quarter results

Specifically, Coinbase’s largest expense in the first quarter was technology and development spending, at $571 million, up 24% from the fourth quarter of last year, mainly due to its continued investment in product innovation and platform infrastructure; followed by general and administrative expense of $414 million, up 39% than last quarter, mainly due to a large increase of employees (4,948 full-time employees by the end of the first quarter, up 33% from the last quarter), as well as the increased investment in the legal affairs, compliance, and business support; then is the large $278 million transaction expense, despite a 45% decline than last quarter.

Besides, other operating expense was $259 million, up 252% year on year. In addition to its crypto asset depreciation, Coinbase had several platform-related events and losses, incurring an increase in other operating expense.

Regarding its gloomy revenues, Coinbase said, “Given the price cycle of the crypto industry, our financials are expected to fluctuate. This doesn’t bother us since we have always taken a long-term perspective on crypto. We are also looking for long-term investors who are confident in our mission and able to persevere through the price cycle.”

However, most investors didn’t buy into the earnings report and the rhetoric. Shares of Coinbase plunged 12.6% in after-hours trading, quoted at about $72.99, and its market cap dropped to $16.2 billion, as the numbers generally fell short of analysts’ expectations. Its shares nosedived 71% after it went public.

Coinbase forecasts further reductions in monthly user trading volume, total trading volume and transaction costs in the next quarter, with increased expenses in areas such as technology development and administration. Meanwhile, Coinbase said it aimed to keep its potential adjusted full-year EBITDA loss for 2022 at about $500 million, requiring its expected losses for the next three quarters staying at no more than $100 million, which will pose a great challenge for its measures to increase revenues and decrease expenses.

We can also have a glimpse of Coinbase’s anxiety about its revenue source expansion from its moves in recent months. For example, Coinbase has dramatically accelerated the frequency of new coin listing and also announced a list of to-be-listed coins in early April, including dozens of low-profile Altcoins to attract more Altcoin traders.

Meanwhile, Coinbase officially launched the Coinbase NFT marketplace in April after nearly half a year of development, to cater to the NFT market and generate more revenue from NFT transactions. But according to Dune Analytics statistics, the average transaction of the NFT marketplace in the past five days was only $52,000, with a total account volume of 1,830, showing no sign of significant growth.

Coinbase may start a new round of equity financing probably due to its capital flow pressure. Coinbase today announced that it has filed to SEC its “shelf registration”, a process allowing U.S. companies to more easily and quickly issue and sell new shares, and have more flexibility to choose share issuance date.

The situation of Coinbase largely reflects the dynamic of the crypto industry. It will be a common mission for the industry to face the challenges of the bear market in terms of revenue streams, market confidence and other issues.



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