Coinbase Q3 earnings miss but users hang on

Coinbase Global (COIN) reported third-quarter earnings Thursday showing the company missed estimates on revenue and earnings. However, it retained users and lowered expenses better than analysts predicted.

Shares rallied more than 4.5% in after-hours trading following Thursday’s sell-off of 8.2% through the trading day. The stock is 77.5% lower than in January, closing at $55.80 on Thursday.

Here are Coinbase’s Q3 results compared to Bloomberg’s consensus estimates:

Revenue: $590.3 million versus expectations of $649.15 million

Adjusted EBITDA: -$116 million versus expectations of -$212.95 million

Adjusted earnings per share: -$2.43 versus expectations of -$2.12

Monthly Transacting Users (MTUs): 8.5 million versus expectations of 7.84 million

“Q3 was a mixed quarter for Coinbase. Transaction revenue was significantly impacted by stronger macroeconomic and crypto market headwinds, as well as trading volume moving offshore,” Coinbase said in its third-quarter letter.

Global crypto trading volumes fell by 40% globally — worse than in Q2 — according to CoinMarketCap. For the period, Coinbase reported trading volumes of $159 billion, down 27% from the previous quarter’s $217 billion.

The company reported $365.9 million in transaction revenue from fees, split between $346.1 million from retail-sized transactions and $19.8 million from institutional transactions. That compares to a 44% decline in retail transactions from the $616.2 million recorded in the second quarter and a 49% drop in institutional transactions from $39 million.

The crypto firm’s second-largest revenue generator, subscriptions and services — which include payment for its staking, custody, and interest income — brought in $210.5 million, up from $147.4 million in Q2.

Within subscriptions and services, revenue from staking (from $62.8 million to $66 million) and custody (from $22.9 million to $14.6 million) performed worse this quarter along with trading activity.

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Interest income, on the other hand, which analysts have identified as the company’s best bear market cushion, more than tripled from $32.5 million to $101.8 million as a result of rising interest rates.

Coinbase’s interest income includes a revenue sharing agreement for being the sole retail issuer of the second-largest stablecoin, USDC. As part of that agreement, it gets 30% of the yield earned from USDC reserves, which are parked in cash and short-duration U.S. Treasuries.

Following a period of record growth through 2021 to April of this year, when Bitcoin began its roughly 50% year-to-date tumble, Coinbase has needed to change its business strategy by severely cutting expenses.

After spending over $1 billion in the first half of 2022, Coinbase announced layoffs of 18% of its workforce, some 1,100 employees, in the middle of June.

Last quarter, it addressed investor concerns by saying it’s “working hard” to operate within a guardrail of $500 million in adjusted EBITDA loss for 2022.

With this latest financial report lifting this year’s loss to $460 million, the company will need to show a lot of cost cutting by reporting a quarterly cash profit loss of $40 million or less in the final quarter.

Following a “pause, maintain, and prioritize” approach telegraphed in its Q2 release, Coinbase disclosed Wednesday in a filing with the Securities and Exchange Commission (SEC) that its chief product officer, Surojit Chatterjee, would step down on “mutually agreed” terms at the end of November.

As a result, the product team will be restructured into four different divisions, but it remains unclear whether the reorganization will cut costs.

“While the macro headwinds are beyond our control, we continue to focus on factors within our control: narrowing our product focus to deliver amazing customer experiences and reducing our operating expenses,” the release said.

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers

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