Coinbase Slumps After Reporting Lower-Than-Forecast Revenue

(Bloomberg) -- Coinbase Global Inc. shares fell nearly 12% in postmarket trading after the biggest U.S. digital-asset exchange reported worse-than-forecast results following a summertime swoon in the volatile cryptocurrency market. 

Coinbase, which blamed market turbulence and lower coin prices during the early portion of the third quarter, posted revenue of $1.24 billion, compared with the $1.57 billion forecast by analysts. While lower sequential revenue was expected after coin prices dropped from record highs at the end of the second quarter, many analysts recently inched up estimates, encouraged in part by a recovery in downloads of Coinbase’s main mobile app. 

In its letter to shareholders, Coinbase said that “market conditions improved meaningfully later in the quarter which we have continued to see into early” into the current or fourth quarter. Bitcoin hit another all-time high of more than $68,000 on Tuesday.

“The numbers look bad, and they are,” said Chris Brendler, an analyst at D.A. Davidson & Co. “The issue that you have with a company report like that is that people want to know what’s happening next quarter.”

Coinbase’s recurring monthly user numbers slumped in the third-quarter though those are expected to recover. Coinbase said monthly transacting users on its platform reached 7.4 million, down from 8.8 million in the second quarter. Its verified users grew to 73 million. The company also updated its full-year average monthly transacting user guidance. It now expects between 8 million and 8.5 million such users, up from 5.5 million to 8 million projected in August.

“In lower volatility periods, we see our low-dollar traders become less active,” Alesia Haas, Coinbase’s chief financial officer, said during the company’s earnings call.

Third-Quarter Breakdown

• Revenue $1.31 billion, -41% q/q, estimate $1.57 billion (range $1.27 billion to $1.96 billion) (Bloomberg Consensus)
• EPS  $1.62 vs. $6.42 q/q
• Monthly transacting users 7.4 million, -16% q/q, estimate 7.09 million
• Trading volume $327 billion, -29% q/q, estimate $308.88 billion
• Retail trading volume $93 billion, -36% q/q, estimate $99.42 billion
• Institutional trading volume $234 billion, -26% q/q, estimate $210.91 billion
• Assets on platform $255 billion, +42% q/q
• Adjusted Ebitda $618 million, -46% q/q, estimate $662.3 million (range $324.0 million to $1.06 billion)

“It seems to me that the trading volumes were basically as expected,” said Julie Chariell, an analyst at Bloomberg Intelligence. “The revenue seemed to be more because of yield, price earned per trade. The big question is why. One part of the reason seems to be the ongoing user shift [from retail to institutions]. As the mix shift continues, the average price Coinbase earns comes down.”

In recent weeks, analysts said Coinbase benefited from listing the Shiba Inu meme token, popular with investors, in September. That, combined with a bull market in crypto that’s pushing more investors to step in, has led to a surge in downloads of Coinbase’s main mobile app. It’s also having traction with institutional investors, signing up clients like PIMCO, the company said.

Coinbase is also diversifying its services, with plans to launch derivatives as well as a platform for trading non-fungible tokens. The NFT business could prove highly lucrative: Revenues of established marketplaces like OpenSea have exploded, and OpenSea takes a 2.5% cut of transactions.

“We are very excited about NFTs, this is going to be a very large area for crypto in the future, and it already is today,” Coinbase Chief Executive Officer Brian Armstrong said during the earnings call. “It could be as big or bigger.”

At the same time, in September, Coinbase has had to shelve its plans for Lend, which was supposed to let users earn interest on coin holdings, due to pressure from the Securities and Exchange Commission.

While Coinbase’s shares slumped in postmarket trading in the wake of the earnings report, they had hit an all-time high on Tuesday and were up by more than 40% since they started trading in April. 

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