Aug 10, 2022 - Economy & Business

Coinbase Global's second quarter reflects crypto slowdown

Illustration of a Coinbase logo sweating in the spotlight.
Illustration: Aïda Amer/Axios

Coinbase Global stepped into the spotlight for its earnings show-and-tell and delivered the stinker of a performance everyone expected.

Why it matters: Coinbase is the crypto industry's main character at the moment. As the highest-profile publicly traded crypto company in the U.S., its results are watched by many as a proxy for the health of an entire industry. And lately, it has become the venue for a public battle between it and securities regulators over what is not allowed.

Catch up fast: The crypto exchange reported a $1.1 billion net loss for the second quarter (roughly half of which was due to crypto price drag) and revenue of $803 million, down 31% compared to the previous quarter.

  • Its stock fell 11% and extended losses in post-market trading Tuesday.

Of note: If anyone was hoping for something illuminating on the Great Securities Debate, the company's earnings call was a big disappointment.

  • "In May, the SEC sent us a voluntary request for information, including about our listings and listing process. We do not yet know if this inquiry will become a formal investigation," CEO Brian Armstrong said in reference to the seven assets listed on Coinbase's platform that have been deemed securities.

State of play: Coinbase's business model relies heavily on regular people, with retail customers' transaction fees accounting for the lion's share of its revenue. Now those people are trading less.

  • Monthly transacting users fell to 9 million from 9.2 million in the previous quarter.
  • Of its net revenue of $803 million, $655 million was in transaction revenue and the rest from subscription and services.
  • Of that transaction revenue, its retail customers accounted for $616 million, down 36% form the first quarter.
  • By comparison, institutional transaction revenue (from the likes of hedge funds, mutual funds and ETFs) was $39 million, down 17% over the same period.
The decline in coin prices has dampened daily trading volume in the second quarter as folks who buy and sell digital assets sat on the sidelines. Data: Kaiko; Chart: Nicki Camberg/Axios

Between the lines: Coinbase took a $42.5 million restructuring expense as a result of reducing its headcount by 18%.

  • Non-cash impairment charges relating to crypto investments and venture investments were $446 million. That ate into profits due to an accounting quirk.

What others are saying: "What is baked in [to the stock] — significant pessimism," BTIG analyst Mark Palmer said. He has a buy rating on shares, but his price target of $290 suggests the stock can climb 230% from Tuesday's closing price of $87.68.

  • The big picture: "Coinbase’s institutional platform has largely been overlooked. That's a big part of our bullish thesis," he said.
  • "BlackRock is a big step in the right direction" Chris Brendler, analyst at D.A. Davidson tells Axios. "But we're not sure how big of a business that's going to be without details." Brendler has a buy rating on Coinbase and a 12-month price target of $90.

What's next: More of the same.

  • Coinbase expects second-quarter trends to persist through the rest of the year.
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