After revealing the better than expected financial results in its fourth quarter earnings report, US-based Coinbase has big plans.
The second-largest crypto exchange told investors it plans to build heavily on its work with the popular stablecoin USDC this year, leverage its layer-2 blockchain foundation as a way to experiment and improve blockchain’s utility, and promised to continue the its regulatory work on behalf of itself and the wider web3 industry. All this while a bull market and institutional inflows are coming back into play.
Coinbase is powerful fourth quarter results they come after a return to form for the crypto industry itself, which spent much of 2023 mired in recession. As the past year has come to a close, trading activity has picked up, and the start of 2024 came with a crucial regulatory win over spot bitcoin ETFs that could give Coinbase and its peers a strong start to the year.
Overall, the total cryptocurrency market capitalization has increased by 14% in a seven-day period to $1.96 trillion, the highest level since April 2022 before the collapse of Terra LUNA. With the recent growth in the crypto market, many market players also expected Coinbase’s trade-based revenue to increase — and it did.
In the fourth quarter, Coinbase generated $529.3 million in “transaction” or trading revenue, with $492.5 million coming from retail activity and $36.7 million from institutional traders. The total was up 83.4% from $288.6 million in the third quarter.
While it looks bright, the stock’s total trading revenue is still down 44% year-over-year as the market climbs back to bull market levels.
Financial results
In the fourth quarter of 2023, Coinbase generated $953.8 million in revenue, far exceeding the $629.1 million generated in the fourth quarter of 2022. It also easily surpassed the $674.1 million in revenue recorded in the third quarter of last year. The company’s reported figures beat expectations, which included revenue of just $820 million.
Earnings came in at $1.04 per share on $275.7 million in net income, well above expectations for $0.02 per share.
Tail winds
Coinbase could ride out its strong fourth-quarter results in the first quarter of 2024, a period that included regulatory wins, including the approval and launch of a series of spot bitcoin ETFs based on the company to house its digital assets. (As they raise more AUM, Coinbase’s custodial business should expand linearly with these inflows.)
But Coinbase is also the custodian for eight of the 11 spot bitcoin ETF issuers, meaning it’s also finding cash flowing down that avenue. And the more the spot bitcoin ETF market grows, the more likely Coinbase is to win. (The firm is bullish on the issue, calling the SEC’s approval of spot bitcoin ETFs “a watershed moment for the expansion of the crypto economy.”)
Through Feb. 13, its earnings document notes that the company recorded trading revenue of “approximately $320 million,” which put it on pace for a quarter of around $640 million to $650 million. With subscription and service revenue estimated to be “in a range of $410-480 million” for the current quarter, Coinbase could surpass $1 billion in quarterly revenue for the first time in several quarters.
With more demand for its custodial product at the fore, transaction fees rising, and cryptocurrency prices regaining much of their previous momentum, Coinbase is on a much stronger footing than it was a year ago. At the same time, there are some headwinds on the horizon for the company. Coinbase, like many fintech players, has benefited greatly from the rise in interest rates, which has boosted the value of the reserves it holds in USDC and the income provided by its own cash reserves. Interest rates in Coinbase’s home market are expected to moderate this year, which could limit interest-based revenue growth at the company. There is also a possibility that some consumers may turn to ETF products instead of buying bitcoins directly through Coinbase, which could lead to some unevenness in its trading revenue.
However, Coinbase started generating positive adjusted EBITDA even during a long market downturn. It did that, and now it’s back in growth territory as a slimmed-down company. Not a bad place to start the year at all and provides some warmth for an industry that has just been plunged into a long winter.
