Coinbase Net Profit Drops 75% in Q3, COIN Stocks Take a Hard hit

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2021-11-11 14:47:03

The largest cryptocurrency exchange in the United States by trading volume is Coinbase, which reported Q3 earnings of $406 million today.

Coinbase Net Profit Drops 75% in Q3, COIN Stocks Take a Hard hit

Coinbase posted revenue of $1.235 billion for the third quarter, well below FactSet analysts’ estimates of $1.614 billion. The company’s total profit came in at $406 million, marking a 74.7% drop in profit from the previous quarter, although this was higher than analysts’ expectations of $380 million. Coinbase also reported earnings of $1.62 per COIN share, 10% below FactSet consensus estimates.

Shares of Coinbase (COIN) took a hit after the company reported a 75% drop in net income. COIN closed Nov. 9 with a 0.98% gain at $357.39, however after the release of the exchange’s Q3 report, COIN continued to drop around 13.10% and trading around around $311.71 at the time of writing.

COIN/USD stock price chart.  Source: TradingView
COIN/USD stock price chart. Source: TradingView

Despite the relatively low performance in the third quarter, Coinbase said in the report that it has been a “relatively strong” period for the company, geared towards deeper investor engagement on the platform and development of new products. new products such as NFT market deployment. The company also emphasizes that it will focus on the long-term rather than quarterly:

“Coinbase is not a quarterly investment, but a long-term investment in the growth of the cryptocurrency economy and its ability to serve users through the best products and services. We encourage our investors to follow this view.”

This has been partly proven through the personal sharing of FTX CEO Sam Bankman-Fried, the richest man in the cryptocurrency industry with a fortune of $22.5 billion.

“I have some small notes on Coinbase Q3 earnings!

The growth rate of Coinbase represents the yellow line according to the chart. They had a lackluster Q3, but the situation shows a good Q4 picture is opening up for them.

So how did they do it? Coinbase made $1.2 billion in revenue and $600 million in EBITDA (the term for earnings before interest, taxes, depreciation, and amortization). As always, that revenue mostly comes from services to retail investors, transaction fees for retail investors average 1%. On mobile apps, the average fee is probably higher, and that is probably the cause of most of these fees.”

“What about 20% of their revenue? Probably coming from 8% ($80 million) coming from blockchain rewards. But they also pre-booked 1978 USD in transaction fees, mainly from staking ETH 2.0.

And expenses? They are paying $4 billion/year in costs. About 60% of that goes to technology or G&A, both of which seem to be mostly employees? There are 2,700 full-time employees, which equates to $1 million/year/FTE (1 full-time employee).”

“But the most interesting thing is the cost of other activities up to 500 million USD/year. And that seems to be about compensation for Coinbase users. It must be said that this is a huge compensation that Coinbase offers to their customers.

In the end, Coinbase is doing quite well. They made $600 million in EBITDA last quarter and next quarter is likely to go higher.”

At the same time, the “tense” relationship between Coinbase and the U.S. Securities and Exchange Commission (SEC) appears to be slowly easing. CEO Brian Armstrong first highlighted the company’s problems with the SEC in September when he revealed that the SEC had threatened to sue Coinbase if the exchange launched a new lending product. However, Armstrong said during his third-quarter earnings call that he had a “very productive” meeting with SEC chairman Gary Gensley last week.

In addition, Coinbase posted 41% growth in subscription services revenue of $145 million QoQ through ETH 2.0 staking programs, custodial fee revenue, and token rewards. The company also noted that its 7.4 million monthly trading users (MTUs) are starting to participate beyond the cryptocurrency’s first use case.

Trading volume on Coinbase hit $327 billion in Q3, down 29% from Q2, with institutional investors representing a large share of the trading market at $234 billion, while retail traders accounted for 93 billion USD. Ethereum (ETH) outperformed Bitcoin (BTC) in terms of trading volume for the second consecutive quarter, with the former totaling 22% while the latter accounted for 19% of the total volume. Crypto-assets accounted for 59% of trading volume, up 18% from Q2.

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