Original title: (Detailed Analysis of Coinbase Q1 Earnings Report: Net Profit Plummets 94% Due to Portfolio Losses, Can the $2.9 Billion Acquisition of Deribit Break the Deadlock?)
Original author: Felix, PANews
U.S. cryptocurrency exchange Coinbase announced its Q1 earnings report on May 8 local time, indicating that due to a cooling market after the previous quarter's post-election surge, both revenue and net profit fell short of expectations.
As of March 31, adjusted net profit was $527 million. Earnings per share were $0.24, below the market expectation of $1.93. Total revenue was $2 billion, slightly below the expected $2.12 billion and lower than $2.3 billion in Q4 2024. Q1 trading revenue fell 19% to $1.2 billion, with trading volume down 10%.
As a result of this news, Coinbase (COIN) shares fell 2.67% in after-hours trading, after rising 5% on the previous trading day. COIN has dropped 16.83% since the beginning of the year.
Revenue
In Q1, the average volatility of cryptocurrency assets increased, with BTC reaching an all-time high in January. However, impacted by tariff policies and macroeconomic uncertainty, cryptocurrency prices fell in sync with the overall market. Compared to the end of Q4, the total market capitalization of cryptocurrencies decreased by 19% to $2.7 trillion at the end of Q1.
Against this backdrop, Coinbase's revenue reached $2 billion, a quarter-over-quarter decrease of 10%; net income plummeted 94% quarter-over-quarter to $66 million, mainly impacted by a pre-tax loss of $597 million in the crypto asset portfolio, of which the majority was unrealized losses. Adjusted net profit was $527 million, and adjusted EBITDA was $930 million.
Trading revenue
Coinbase's earnings report shows that trading is its main source of income, accounting for over 60% of total revenue. Q1 trading revenue was $1.3 billion, a quarter-over-quarter decrease of 19%. Coinbase's total spot trading volume fell 10% quarter-over-quarter to $393.1 billion, but outperformed the global spot market, which saw a 13% decline in trading volume. In terms of derivatives, Coinbase's trading volume reached $803.6 billion, with a growing market share.
Of this, retail trading volume in Q1 was $78.1 billion, a quarter-over-quarter decrease of 17%. Retail trading revenue was $1.1 billion, a quarter-over-quarter decrease of 19%, consistent with the decline in trading volume. In terms of institutional trading, institutional trading volume was $315 billion, a quarter-over-quarter decrease of 9%, and institutional trading revenue was $99 million, a quarter-over-quarter decrease of 30%.
In addition to the impact of the macro backdrop, the second factor for the quarter-over-quarter decline in revenue is the derivatives business. The earnings report stated that Coinbase is investing in trading rebates and incentives to build liquidity and attract customers. These rebates and rewards have been deducted from institutional trading revenue.
Other trading income
Q1 other trading revenue was $68 million, unchanged quarter-over-quarter. The number of trades on Base increased by 16% quarter-over-quarter, but the average revenue per trade decreased by 21%.
Subscription and service revenue
Q1 subscription and service revenue was $698 million, a quarter-over-quarter increase of 9%, mainly benefiting from the growth in stablecoin and Coinbase One revenue, with the USDC market capitalization reaching a historical high of over $60 billion. However, blockchain reward revenue decreased by 9% quarter-over-quarter, partially offsetting this growth. The main reason for the decline was the quarter-over-quarter decrease in average asset prices, particularly for ETH and SOL.
Q1 stablecoin revenue increased by 32% quarter-over-quarter to $298 million. Coinbase stated that this growth was partly offset by lower average interest rates. The average holding of USDC in Coinbase products increased by 49% quarter-over-quarter to $12.3 billion.
Other subscription and service revenue was $141 million, a quarter-over-quarter increase of 5%. The number of subscribers for Coinbase One reached a record high in Q1, and the Coinbase One Premium service ($300 per month) also saw growth.
Expenditure
Total operating expenses for Q1 were $1.3 billion, an increase of 7% quarter-over-quarter, or $91 million, primarily due to increased variable costs resulting from market activity at the beginning of the quarter and losses on crypto assets held for operations. Combined expenses for technology and development, general and administrative, and sales and marketing increased by $40 million, a quarter-over-quarter growth of 4%, mainly due to increased marketing spending (including performance marketing and USDC rewards) and higher customer support costs. By the end of the quarter, Coinbase's full-time employees increased by 5% quarter-over-quarter to 3,959.
Trading fees were $303 million, accounting for 15% of net income, a quarter-over-quarter decrease of 4%. The quarter-over-quarter decline was primarily due to reduced customer trading activity as well as lower blockchain reward fees associated with the decline in average asset prices.
Technology and development expenses were $355 million, a quarter-over-quarter decrease of 4%. The primary reason for the decline was that, despite an increase in total employees, personnel-related costs decreased. General and administrative expenses were $394 million, a quarter-over-quarter increase of 9%. The growth was mainly due to increased customer support and personnel-related costs. Sales and marketing expenses were $247 million, a quarter-over-quarter increase of 10%.
Outlook
In April, Coinbase's total trading revenue was approximately $240 million. Coinbase expects Q2 subscription and service revenue to be between $600 million and $680 million, as the expected quarter-over-quarter growth in stablecoin revenue will be offset by a decline in blockchain reward income due to falling asset prices; trading fees will account for about 15% of net income; and technology and development as well as general and administrative expenses will be between $700 million and $750 million.
Notably, Coinbase is focusing on the derivatives market, announcing the acquisition of Deribit, the world's largest Bitcoin and Ether options trading platform, for $2.9 billion, which includes $700 million in cash and 11 million shares of Coinbase common stock, though the acquisition price is subject to customary adjustments. This transaction is pending regulatory approval and meeting other customary closing conditions, expected to be completed by the end of the year. Last year, Deribit had more than $30 billion in open contracts and over $1 trillion in trading volume.
Coinbase CFO Alesia Haas stated during the earnings call: "We expect Derebit to immediately enhance our profitability and increase the diversity and sustainability of trading revenue." Additionally, Coinbase CEO Brian Armstrong mentioned in the investor call that this quarter, Coinbase will launch a pilot project allowing businesses to use stablecoins for payments and expenses.
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