Coinbase Q2 Earnings Show Ongoing Pressure as Low Crypto Prices Drive Lower Trading Volume
No significant change expected to Coinbase stock’s fair value estimate of $110.
As expected, no-moat Coinbase reported poor second-quarter results as weak cryptocurrency markets drove a sharp decline in trading activity on the company’s platform, particularly from its retail userbase, which provides the company with most of its revenue. Net revenue fell 60.5% from last year and 31.1% sequentially to $803 million, while net losses were $1.1 billion. Reported net income was affected by noncash impairment losses, mostly from the company’s cryptocurrency holdings, and adjusted net losses were $647 million. While these results are grim, we went into the quarter with low expectations and do not plan to materially alter our $110 fair value estimate for Coinbase.
The main driver behind Coinbase’s revenue decline was lower transaction fees, as weak cryptocurrency prices and solvency issues among some cryptocurrency-focused firms and investments funds, like Celsius and Three Arrows Capital, had a chilling effect on retail interest in cryptocurrency. Coinbase’s retail trading volume, which generates 94% of the company’s transaction fees, fell 38% from last quarter and 68% year over year. This drove a 64% decrease in Coinbase’s trading revenue from last year to $655 million.
Despite the drop in trading volume, engagement with Coinbase’s platform was surprisingly resilient, with average monthly transacting users only down 2% sequentially. Coinbase did see a trend of its userbase shifting away from trading, hence the severe decline in trading revenue, toward utilizing Coinbase’s other services, primarily staking. As a result, Coinbase’s subscription and service revenue fared better than its trading revenue, increasing 44% year over year and only falling 3% quarter over quarter to $147 million. While these revenue sources do provide an offset to weak trading volume, transaction fees still make up more than 80% of Coinbase’s total revenue and we expect the company’s results to continue to be dependent on cryptocurrency market conditions.
Editor’s Note: This article has been updated to correct the name of the author of this story to Michael Miller.