Shares of Coinbase fell in extended trading on Tuesday after the crypto exchange reported a loss of more than $1 billion in the second quarter and missed analysts’ estimates for revenue.
Here’s how the company did it:
- Earnings: Loss of $4.98 per share, compared to a loss of $2.65 per share as expected by analysts, according to Refinitiv.
- Revenue: $808.3 million, versus $832.2 million as forecast by analysts, according to Refinitiv.
Coinbase’s revenue fell nearly 64% as investors exited the crypto market after last year’s dramatic run. Retail transaction revenue was $616.2 million, down 66% and below consensus of $667.1 million among analysts polled by StreetAccount.
Coinbase posted a net loss of $1.1 billion, compared to $1.59 billion in net profit in the same quarter last year, according to a letter to shareholders. One factor was a $377 million non-monetary cryptocurrency-related impairment charge. At the end of June, Coinbase’s own cryptocurrency assets were worth $428 million, up from around $1 billion at the end of March. Over 40% of cryptocurrency assets were in bitcoin.
“The second quarter was a test of sustainability for crypto companies and a complex quarter overall,” the company said in the letter. “The dramatic market movements have changed user behavior and trading volume, which impacted trading revenue, but also highlighted the strength of our risk management program.”
The company said it had 9 million monthly users transacting during the period, up from 9.2 million in the first quarter, but more than StreetAccount’s consensus of 8.7 million. Macro and cryptocurrency credit led to lower trading volume in the quarter, the company said.
Coinbase is forced to scale its business in response to market conditions.
Cryptocurrency controversies have helped push prices down in what some have called a “crypto winter.” Coinbase shares fell 75% in the second quarter, while the price of bitcoin fell around 59%. Coinbase said it was extending its hiring freeze for the foreseeable future and reducing headcount by 18%. Assets on the platform fell quarter-over-quarter to $96 billion from $256 billion, largely due to cryptocurrency price pressure, Coinbase said.
“While we saw some sharp outflows in Q2, we observed that the majority of this behavior was institutional clients who reduced risk and sold crypto for fiat instead of withdrawing their crypto to another platform” , Coinbase said in the shareholder letter. “As a result, our total crypto market cap market share fell to 9.9% from 11.2% in the first quarter.”
Bitcoin accounted for 31% of transaction revenue in the quarter, the highest level since Q1 2021, while 22% of transaction revenue was associated with Ethereum.
Coinbase has updated its outlook for the full year. It now expects 7-9 million monthly users transacting, up from a range of 5-15 million three months ago. Management said it expects average transaction revenue per user in the low $20 range, rather than pre-2021 levels.
To reduce marketing spend, the company is using paid media and incentives less, while looking for ways to attract unpaid traffic. It also cut its forecast for technology, development, and general and administrative expenses to $4 billion to $4.25 billion, from $4.25 billion to $5.25 billion a quarter ago. This includes optimizing infrastructure spending.
“Of course, we don’t control the macro factors or the downturn,” CEO Brian Armstrong said on a conference call with analysts. “We don’t even really control the broader crypto market, do we? So what do we control? Well, obviously we can focus on creating great products for our customers. We can focus on staying at the forefront of crypto technology to ensure that we create compelling use cases and make them available to our customers.We can focus on our spend management in bear markets and, frankly, we can make sure we’re just not distracted or disappointed by short-term thinking.”
Armstrong added that he expects the company’s current efforts to result in “a disproportionate share in the next bull cycle.”
Coinbase shares were down nearly 11% in Tuesday’s regular trading session.
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