Coinbase (COIN), the largest U.S.-based crypto exchange, likely will say losses narrowed in the first quarter of 2023 as aggressive cost cuts offset tumbling revenue.
Key Takeaways
- Coinbase is expected to report a loss of $1.38 per share, an improvement on last year’s loss of $1.98 a share.
- Revenue has shrunk to about a quarter of its 2021 highs, with transaction revenue falling to its lowest levels since 2020.
- Earnings call could focus on regulatory hurdles and the company’s staking operations.
Coinbase is expected to report a first-quarter net loss of $329 million, or $1.38 per share, compared with a $429 million loss, or $1.98 a share, in the same quarter a year ago, according to analysts’ estimates compiled by Visible Alpha. Total revenue at the company is forecast to slip to $651 million from $1.16 billion as demand for crypto assets slows. Coinbase will report its first-quarter earnings after markets close on Thursday.
Investors will be interested in the impact of Coinbase’s cost-cutting measures, including its decision in January to lay off 950 employees, or about 20% of its workforce. Analysts expect the company to report it incurred $155 million in restructuring costs last quarter as a result of the layoffs. The company’s total cost of operations is forecast to fall 42% from last year.
Investors will also be looking for signs of any damage from the panic that gripped regional banks last quarter. When Silicon Valley Bank collapsed on Friday, March 10, USDC stablecoin issuer Circle disclosed that it had $3.3 billion of funds backing the stablecoin deposited at the failed bank. Subsequently, USDC lost its peg to the U.S. dollar as investors made for the exits.
Coinbase paused redemptions over the weekend and by Monday USDC had regained its USD peg, but USDC redemptions continued. The stablecoin’s market capitalization has fallen to $30 billion from $44 billion at the beginning of the year.
Dwindling USDC deposits could hurt Coinbase’s interest income, which has been something of a saving grace through this crypto winter. In the fourth quarter, interest income grew 79% quarter-over-quarter to $182 million, with USDC accounting for $146 million of that total. Analysts forecast first-quarter interest income to grow 9.5% from last quarter to $200 million.
Coinbase executives could also face questions about regulatory pressure, specifically, the Wells notice the company received from the Securities and Exchange Commission (SEC) in March. U.S. regulators have taken a tough stance against cryptocurrency firms this year, with legal action against Kraken and Paxos forcing the companies to cease certain operations in the country.
Coinbase CEO Brian Armstrong has expressed concern about a potential staking ban in the United States. At a fintech conference last month, he suggested Coinbase would leave the U.S. in a few years if it didn’t receive more clarity from regulators.
“Anything is on the table, including relocating or whatever is necessary,” said Armstrong.
Coinbase shares are up almost 42% this year but have lost 80% of their value since the beginning of 2022. The S&P 500 Financials Sector has fallen 3% and 13% over those same time periods.
The Key Metric
Coinbase’s transaction volume, its largest source of revenue, balloons and shrinks with public interest in cryptocurrency, making it a highly unstable revenue stream. Subscriptions and services are a more reliable source of income for the company. This business segment consists of staking income, custodial fees, interest income, and other services like Coinbase Cloud and Coinbase One.
Coinbase is expected to report $313 million in subscription and services revenue in the first quarter, more than double the same quarter last year. Services revenue is forecast to account for 48% of revenue, more than any previous quarter.
| Q1 2023 (est.) | Q1 2022 | Q1 2021 | |
|---|---|---|---|
| Earnings per share ($) | -1.38 | -1.98 | 6.07 |
| Revenue ($M) | 651 | 1,166 | 1,801 |
| Subscriptions and services revenue ($M) | 314 | 152 | 56 |