After announcing results that exceeded expectations US-based Coinbase has big plans, announced in its fourth quarter earnings report.
The second-largest cryptocurrency exchange will focus this year on its popular USDC stablecoin efforts, leveraging its recently launched Layer 2 blockchain base as a way to experiment and improve the utility of blockchain. The company has told investors that it intends to do so, and is committed to continuing to work on regulation on behalf of its company and the larger Web3 industry. Meanwhile, the bull market and capital flows into financial institutions are starting to pick up again.
Coinbase’s strong fourth-quarter results come after the crypto industry itself recovered after being mired in an economic downturn for much of 2023. Trading activity picked up as last year drew to a close, and the start of 2024 brought a significant regulatory victory for spot Bitcoin ETFs, allowing Coinbase and its peers to get off to a strong start to the year. .
Overall, the market capitalization of cryptocurrencies rose 14% in seven days to $1.96 trillion, its highest level since April 2022, before the collapse of Terra LUNA. With the recent growth of the cryptocurrency market, many market participants expected his Coinbase's trading-based revenue to increase as well, and that's exactly what happened.
In the fourth quarter, Coinbase generated $529.3 million worth of “transaction” or trading revenue, of which $492.5 million came from retail activity and $36.7 million from institutional investors. Total sales increased 83.4% from $288.6 million in the third quarter.
Despite the bright spots, the exchange's total trading revenue is still down 44% year over year as the market recovers to bull market levels.
Financial summary
In Q4 2023, Coinbase generated revenue of $953.8 million, much higher than the $629.1 million in Q4 2022. It also easily surpassed the $674.1 million in revenue recorded in last year's third quarter. The numbers the company reported beat expectations, including revenue of just over $820 million.
Earnings were $1.04 per share, and net income was $275.7 million, well above expectations of $0.02 per share.
Tailwind
Coinbase is likely to beat its strong fourth-quarter results in Q1 2024, but this period will also see regulatory challenges, including the approval and launch of a number of spot Bitcoin ETFs that rely on the company to store digital assets. It also included a victory. (As AUM increases, Coinbase's custody business should scale linearly with those inflows.)
But Coinbase is also the custodian for 8 of the 11 Spot Bitcoin ETF issuers, so it's also finding cash flow there. And the more the spot Bitcoin ETF market grows, the bigger the opportunity for Coinbase to capture. (The company is bullish on the matter, calling the SEC's approval of the Spot Bitcoin ETF “a watershed moment for the expansion of the crypto economy.”)
The company's financial documents state that through Feb. 13, the company had recorded trading revenue worth “approximately $320 million,” with about $640 million to $650 million in the same quarter. It is moving at the pace of the dollar. This quarter's subscription and services revenue is estimated to be “in the range of $410 million to $480 million,” meaning Coinbase's quarterly revenue could top $1 billion for the first time in many quarters. be.
Coinbase is on much stronger footing than it was a year ago, as demand for custody products increases, transaction fees rise, and crypto prices regain their former vibrancy. At the same time, there may be headwinds for the company. Coinbase, like many fintech companies, has benefited greatly from rising interest rates that boost the value of USDC's reserves, as well as from the income it receives from its own cash reserves. Interest rates in Coinbase's domestic market are expected to moderate this year, which could limit the company's interest income growth. It's also possible that some consumers may turn to ETF products instead of buying Bitcoin directly through Coinbase, which could create some unevenness in their trading income.
Still, Coinbase has set out to generate positive adjusted EBITDA even during a prolonged market downturn. That has come to fruition, and we are now returning to growth territory as a leaner company. This isn't a bad place to start the year, bringing some warmth to an industry that has just come through a long winter.