Parsing FTX’s 2021 growth in a Coinbase context

Over the weekend, CNBC reported a set of revenue and profit figures from FTX, a global cryptocurrency exchange that raised a mountain of capital in the last year and is currently expanding its product remit. Its founder, Sam Bankman-Fried, has been a key player in the crypto market in recent months, involved in several deals as the decentralized economy weathers a slowdown amid a barrage of bad news.

The data that CNBC uncovered paints a picture of strong growth, but a limited one — it didn’t get ahold of Q2 numbers. The information, FTX’s trailing private market cap, and recent data concerning Coinbase’s financial performance set up an interesting question: Is Coinbase cheap, or is FTX overvalued?


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Naturally, because we’re dealing with one private company and one public concern, we will have to endure information asymmetry. Coinbase is public, meaning we have basically all of its data, making the U.S. company a key barometer in our ability to understand the economics of crypto trading.

Still, we have more data regarding FTX than I believe ever before, so let’s take advantage of it!

FTX’s wild 2021

Per CNBC’s reporting, FTX financial data starting two years ago:

  • 2020 FTX revenue: $89 million
  • 2020 FTX operating income: $14 million
  • 2020 FTX net income: $17 million

How did those numbers expand last year during the crypto craze?

  • 2021 FTX revenue: $1.02 billion
  • 2021 FTX operating income: $272 million
  • 2021 FTX net income: $388 million

And what do we have for this year? Just the following:

  • Q1 2022 FTX revenue: $270 million
  • 2022 FTX annualized run rate: $1.08 billion

From these figures, we can see why investors were so excited about FTX that they pumped it full of cash last year and in the opening weeks of 2022. Per Crunchbase data, FTX raised $1 billion at an $18 billion post-money valuation in July of 2021. That Series B was extended later in the year with $420 million more, at a loosely $25 billion valuation. And FTX raised a $400 million Series C that it announced in the first month of 2022, the transaction bolstering its valuation to a post-money figure of $32 billion, again per Crunchbase data.

Growing from under $100 million in revenue one year to north of $1 billion the next made FTX precisely the sort of company that venture investors want to back. But what Coinbase taught the world in recent quarters is that while crypto-based revenues at trading venues can scale quickly — and generate simply tantalizing profits at the same time — they can also invert. Growth can go from screaming hot to ice cold, and profits can evaporate into negative territory rather quickly.

Recall that Coinbase’s value spiked to around $77 billion last year, before falling all the way to $16.75 billion today, per YCharts.¬†Given that Coinbase has seen such a dramatic repricing, is it fair to say that FTX is worth less today than it was in January?

Almost certainly, but we cannot be sure because we lack its Q2 2022 results. FTX’s second-quarter revenue figure is perhaps the most important data point we could hope for because it would not only provide a good year-over-year comp for the company’s 2021 performance but also because it would make plain whether FTX’s Q1 2022 revenue figure was trending up or down. If Q2 revenue at FTX was lower than what it recorded in Q1, then the company would be following along the same path as Coinbase. In turn, that would imply that its value has also fallen dramatically, at least in paper terms, since its Series C.

Recall that Coinbase’s net revenue reached $2.49 billion in the final quarter of 2021, falling to $1.16 billion in the first quarter of 2022 and then to $803 million in the second quarter of this year. In response, investors bid shares of the company down further.

Coinbase is worth just about 3.0x its trailing revenues, per YCharts, and 5.2x its Q2 revenues, annualized. If we applied the latter figure to FTX’s Q1 2022 revenue result, it’s worth $5.6 billion, a fraction of its most recent valuation — and those that preceded it last year.

Naturally, FTX could have had a cracking Q2, putting growth on the board and thus keeping its valuation at safer levels, but we simply don’t have the data to make that claim, nor do we have an indication that it is managing results so strong that it is able to buck the crypto downturn.

The story of FTX is therefore likely somewhat similar to that of Coinbase — huge growth in 2021 and a more difficult 2022. Given its reported cash position, FTX doesn’t need to raise more capital, which is good. Because if it did, the terms wouldn’t likely bring much joy.