Coinbase Global stock fell 10% in after-hours trading on Tuesday after the company’s third-quarter earnings and revenue missed analysts’ expectations amid a slowdown in crypto trading in the third quarter.
Coinbase (ticker: COIN) revenue of $1.3 billion fell short of analysts’ expectations for $1.6 billion and its earnings per share of $1.62 were below estimates of $1.81.
The trading platform, which aims to be the on-ramp for all sorts of crypto services, is heavily dependent on transactions for its revenue. So when volatility slows down in crypto, Coinbase can struggle. Although the company’s verified user base grew to 73 million in the quarter — more than twice as many users as any traditional American broker — only 10% of those users conducted a transaction in the quarter. Monthly transacting users fell to 7.4 million from 8.8 million in the second quarter.
Coinbase has benefited from the rise in value of Bitcoin and Ether, both of which recently hit new record highs. But the fortunes of the stock remain dependent on the volatility of those assets as much as their price. In addition, new users appear more interested in trading other coins on Coinbase. Bitcoin has gone from 32% of trading volume a year ago to 19% today.
The positive news from the release was that Coinbase has been growing other sources of revenue, so that it won’t be quite so dependent on transactions going forward. Its subscription and services revenue grew 41% sequentially, to $145 million. In the quarter, just under half of its active users accessed a non-investing product like its “staking” service that helps people earn interest on their crypto holdings. The company has also said it would be starting a service to trade non-fungible tokens, or NFTs, another fast-growing part of the industry.
But Coinbase still lives or dies based on the velocity of the crypto market. If people are simply sitting on their holdings, the company doesn’t seem to make as much. In the quarter, trading volume fell to $327 billion from $462 billion.
The company said in a shareholder letter that its fortunes have shifted for the better in the current quarter — “market conditions improved meaningfully later in the quarter which we have continued to see into early Q4.”
Write to Avi Salzman at [email protected]
