Coinbase (COIN), a no-moat-rated cryptocurrency exchange, recently released its third-quarter financial results, which were in line with market expectations. The company reported lower trading revenue but benefited from higher stablecoin income and cost-cutting efforts, resulting in a narrowing of net losses.
Q3 Performance Overview
Coinbase’s net revenue for the third quarter increased by 8.2% compared to the previous year, reaching $623 million. However, this represented a 6% sequential decline. Notably, net losses decreased substantially, from $545 million in the previous year to just $2 million, reflecting the positive impact of Coinbase’s cost-cutting initiatives in 2023.
Trading Revenue Decline
Coinbase’s largest source of revenue, trading revenue, saw a decline of 21.1% compared to the previous year, amounting to $289 million. The decrease was primarily attributed to lower trading volume, which experienced a significant 52% drop from the previous year. This decline in volume was partially mitigated by improved pricing, as advanced traders, who typically incur lower fees, constituted a smaller portion of the total trading volume.
Coinbase’s earnings report also disclosed that the company generated approximately $105 million in trading revenue during October, indicating a slight improvement from the third quarter. However, this figure was lower than anticipated, considering the generally positive developments in cryptocurrency markets following news related to cryptocurrency exchange-traded funds (ETFs).
Stablecoin and Service Revenue Growth
On a more positive note, Coinbase reported a 59% increase in subscription and service revenue, which amounted to $334 million compared to the previous year. The primary driver of this revenue growth was the higher interest income derived from the company’s involvement with USD Coin (USDC). Interest income from USDC soared by 124% year-over-year to $172.4 million. USDC is a cryptocurrency pegged to the U.S. dollar and backed by reserves provided by clients to Coinbase and Circle in exchange for newly created USDC. Both Coinbase and Circle earn interest income on these reserves and share the proceeds on a pro-rata basis, making Coinbase a direct beneficiary of rising interest rates.
Market Evaluation and Outlook
Following the release of these earnings results, there are no significant changes anticipated to the $80 fair value estimate for Coinbase. Despite the revenue challenges resulting from lower trading volume, the positive impact of stablecoin income and cost-saving measures has maintained Coinbase’s overall financial performance. As a result, Coinbase’s shares are considered to be approximately fairly valued in the current market environment.
Coinbase’s commitment to cost efficiency and its increasing involvement in stablecoins, such as USDC, have positioned the company well to navigate the evolving cryptocurrency landscape. The performance of the company’s trading revenue and service income in the coming quarters will be closely monitored, as it continues to adapt to the ever-changing cryptocurrency market.
