coinbase earnings call

Coinbase: Rallying Through a Cycle of Irrational Despair

Within the crippled crypto landscape, Coinbase had its fair share of setbacks. 

The exchange, ranking second in the world for crypto trading volume at the end of 2021, was raking in just under $2.3 billion in revenue for Q4. The end of 2022 paints a very different picture. 

While this is somewhat expected and was somewhat alluded to by multiple rounds of layoffs, the mood was somber on the company’s earnings call last night. 

Where net income for the full year 2021 had been $3.6 billion, the company now registered a loss of $2.6 billion. Despite this, CEO and Co-Founder Brian Armstrong attempted to cast hope on the news. 

brian armstrong, CEO coinbase
Brian Armstrong, CEO and Co-Founder of Coinbase

“The narrative in crypto tends to flip every two years. It’s either irrational exuberance or despair.”

“Neither one is true at any given time, but we’re in one of those despair phases right now. And that also means there’s an opportunity for builders who are focused in this space like Coinbase.”

“So if you take where we are now or in 2022 and compare that to just two years ago, you kind of have to look over at least the prior cycle.”

He outlined the developments within the crypto sector, citing the increasing number of developers within the space, the price of bitcoin, and mainstream interest in the space.  

“In short, we remain incredibly bullish on this technology, in this industry,” he said. “We’re operating more efficiently at this new size. We believe that we will be a net beneficiary of increased regulatory clarity.”

“And of course, ultimately, we’ve got to keep driving the utility of crypto, improving our products, driving more and more use cases so that 1 billion or more people can benefit from this technology, and we can increase economic freedom in the world.”

Despite this, financial results for the full year were unsurprisingly bleak, marred by multiple crypto scandals periodically through 2022. 

graph showing market cap fluxuations of NASDEQ and crypto

In the midst of despair, Q4 showed minor improvement. 

While the Coinbase team were quick to mention that full-year outlook predictions (made in November 2022) were on target, it offered little respite. Q4 had shown a slight quarterly growth of 5% for net revenue, driven by a surge of 34% in subscription and services revenue. 

However, trading volume decreased by 9%, and operating expenses continued to increase by 3%. A settlement ordered by the New York Department of Financial Services (NYDFS) in early January 2023 added to expenses. 

Adjusted EBITA in Q4 was also at an all-time low for the year at $124 million, which the company stated was due to a foreign exchange loss experienced in Q2 that was not fully realized until Q4. 

As a result, the company is planning to shift its approach.

“Specifically, for 2023, our goal is to improve our adjusted EBITDA performance in absolute dollar terms year-over-year,” said Alesia Haas, CFO. “And we’re going to continue to work to build revenue streams with less volatility.” 

“While the focus is on improving adjusted EBITDA, our stock-based compensation is coming down too. So we are focused on overall expense performance, and we think that will set the stage for long-term financial performance.”

However, the company has stated it will continue to focus on crypto assets and Web3.

Regulatory Scrutiny Casts Doubt on the sector.

Coinbase’s decision to remain in the crypto space comes with a sense of unease. 

Increased regulatory scrutiny, particularly in the wake of FTX, has created an environment of ongoing confusion, despite ongoing attempts of industry players to remain compliant. The topic was, therefore, front of mind in the earnings call.

“In the wake of FTX and other crypto company failures, we’ve seen increased regulatory scrutiny, of course,” said Armstrong in his opening remarks. “But let me be very clear, I

believe this is a good thing for the space and that it will ultimately benefit Coinbase.”

The company stated that, since it’s conception, it had made regulatory compliance of utmost priority.  They distanced themselves from the recent Kraken settlement, stating their staking services are different to the other exchange. 

Coinbase’s own recent settlement with the NYDFS “for significant failures in its compliance program“ aside, Armstrong said he has been meeting with many government officials in 2023, making “policy an utmost priority”.

Both he and Chief Legal Officer Paul Grewal outlined the many ways Coinbase is engaging with the US regulatory landscape and called for others in the crypto community to do the same. 

Focus On The Near-Term Outlook

With the economic conditions’ continuing uncertainty, the company’s outlook remained on the near-term results. 

“We’re really focusing our near-term outlook on things that we control,” said Haas. “Specifically subscription and services revenue and expenses.”

She explained that they expected subscription and services revenue would convert $300 million to $325 million in Q1. The outlook for transaction revenue remained volatile. 

For Q1 2023, they were also aiming to reduce expenses by 30% on the previous quarter. 

“There are scenarios that we could be EBITDA positive this year. But the goal, because we’re preparing for the worst and hoping for the best, is to ensure that we improve EBITDA year-over-year,” said Haas.

coinbase outlook for Q1

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  • Isabelle Castro Margaroli

    Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

    Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.