Coinbase earnings fall short of expectations: Crypto winter rages further.

Coinbase reported a total of 1.1 billion dollars loss, falling revenue in Q2.

On Tuesday,9 August 2022, Coinbase released second-quarter earnings, posting a substantial $1.1 billion loss on revenue of $803 million. The second quarter’s performance fell short of what analysts predicted at the beginning of the quarter. 

Despite starting on a high last year, this is the company’s second back-to-back loss. In a letter to shareholders, the company reassured shareholders to remain focused on its approach for the future. 

A breakdown of Coinbase’s recent performance in comparison to 2021:

Key business metricsQ2’21Q3’21Q4’21Q1’22Q2’22
MONTHLY TRANSACTION USERS8.87.311.29.29
TRADINGVOLUME($B)462327547309217
ASSETS ($B)18025527825696

Analysts expected Coinbase would lose $2.56 per share off revenues of $832 million. Keeping those estimates in mind, the company has posted a top and a bottom line miss. The company’s share fell by 10.5% during the trading hours.

An analysis of Coinbase’s Q2 results

Coinbase Financials. Source: TradingView

There is a massive decline in revenue compared to the last year. Compared to the previous quarter of 2021, the trading volume has dropped to $217 billion from $547 billion at the end of the second quarter of 2022. 

In June, the CEO of Coinbase, Brian Armstrong, announced the lay-off of more than 1100 of its employees due to stunted revenue growth. These workers collectively make up 18% of the company’s total workforce. 

The net income of Coinbase is below its operating income.

There is a $500 million increase in costs, and the net revenue of Coinbase dropped by 60%, from $2.033 billion to $802 million. The overall increase in costs, shrinkage of the trade volume, and a massive drop in revenue are future threats for the company.

Moreover, the company generated an operating profit of $874 million during the second quarter of the last year. Currently, Coinbase is in a $1.4 billion operation loss: a significant flip.

Illegal listing securities: a severe blow to company’s reputation

The downward spiral in the company’s performance could be attributed to the overall downturn in the crypto market. The company tried to navigate through it via shared-based compensation but failed. 

Coinbase suffered a major blow to its reputation due to illegal listings. The justice department arrested Coinbase’s former product manager for insider trading allegations. 

The catalysts for the high-cost basis for Coinbase

Analysts blame share-based compensation costs as part of a high-cost basis. Share-based compensation peaked at $391.5 million in the recent quarter from $189.3 million in Q2 2021. Similarly, research and development and G&A expenses also peaked.

Coinbase looks like a big company on the balance sheet. However, the cash and equivalents are at $5.68 billion relative to $7.12 billion at the end of the last year. 

Why hasn’t Coinbase sought acquisitions in this downturn like its competitors?

Quoting the example of Coinbase’s competitor FTX, which has acquired stakes in companies like RobinHood and BlockFi, analysts questioned Coinbase’s approach of not making any acquisition attempt. 

In response, the COO of Coinbase stated that the company had made such acquisitions in the past and is looking forward to making more in the future. 

A silver lining for Coinbase in dark crypto clouds

An upside for Coinbase among all this bad news is the number of active users has remained stable, at about 9 million.

The company faced good news at the beginning of the month. Coinbase announced a partnership with the investment giant BlackRock. This development will make it easier for the company to hold crypto. 

The share price is expected to soar past 20%. 

Brian Armstrong is still optimistic for Coinbase’s future as he considers developing new platforms and wallet products promising.

The company has already announced several exciting partnerships for the 3rd quarter and is optimistic that these partnerships will serve as a lever for potential growth.

Coinbase is making headlines for these partnerships and its controversial stance on laying off 18% of its staff. 

Will these measures pay off in the long run?