Later today Coinbase, the American crypto giant will report its fourth-quarter and full-year 2022 results. Given continued turbulence in the cryptocurrency market, and a rough doubling in the value of Coinbase’s stock since the December timeframe, TechCrunch has long awaited this particular set of data.
While Coinbase is no longer a startup, it is a goliath in one of the largest web3 markets. That means its results will help us understand the American crypto market more generally, both in terms of the company’s historical results through the end of last year (how things went), and how the company details its expectations for this year to the investing public (what’s ahead).
Investors have recently taken a shine to Coinbase shares after bidding their value down sharply in 2022; after trading to the low $30s last December, the company’s stock has recovered to the mid-$60s today. That’s a comeback worth billions in market cap. Startups might view the recovery in Coinbase’s worth a positive harbinger for their own value. We’ll see.
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Ahead of the new data, let’s take a minute to put the coming earnings report into context. There are three key questions that we want to have answered by the time we log off today: How quickly is Coinbase growing its non-trading revenues; how well is Coinbase holding up its transaction revenue take rate; and what does the company see ahead of it in terms of user momentum?
Revenue mix
Coinbase is a cryptocurrency exchange that has historically generated the bulk of its revenue and profit from its trading business. In late 2021 the company’s trading revenues scaled to billions of dollars per quarter. Since then, they have declined sequentially from Q4 2021 through at least Q3 2022. We’ll know whether the company has managed to turn that particular corner soon enough.
While the company’s trading revenues have ebbed and flowed with the larger crypto market, Coinbase’s “Subscription and Services Revenue” category has proved more encouraging in recent quarters. After falling from $213.4 million in Q4 2021 to $147.4 million in Q2 2022, the revenue bucket recovered to $210.5 million in the third quarter of last year.
More importantly, the company’s “Other subscription and services revenue,” where it places its Coinbase One (subscription trading service for a monthly charge) and Coinbase Cloud (dapp infrastructure) incomes expanded from $24.3 million in Q2 2022 to $31.4 million in Q3 2022 (albeit still down from a from a high of $53.5 million in Q4 2021). If this particular category can continue its recovery, Coinbase will have demonstrated that its SaaS efforts will be able smooth at least some of its revenue slack despite an uninspiring market for its core trading business.
Take rate
Fees in crypto land are a big deal. An NFT marketplace called Blur, for example, has seen its marketshare expand in recent days thanks in part to a 0% fee structure. In response, Blur’s well-known competitor, OpenSea, axed its own fee structure.
TechCrunch has kept a running ledger of Coinbase transaction revenue as a portion of its total trading volume, calculating a loose take rate for its trading business over time. The direction of the data point has been largely negative for some years. Our math has not historically segmented retail and institutional trading volumes and incomes (perhaps an oversight, in retrospect), but we’re incredibly curious to see if Coinbase can halt the trend in the fourth quarter.
If so, it would imply that the company retains pricing power in its market. That could help Coinbase outperform the American crypto market in the coming quarters. Keep in mind that Coinbase’s trading revenues are heavily driven by consumer trading compared to institutional activity, so a return of the latter without a recovery in the former might not make that much of a difference. Consumer activity, therefore, is of critical importance to Coinbase and its ilk in 2023.
Consumer demand
Speaking of consumer demand, there’s some good news in the air. Robinhood, an American consumer trading company that offers both equity and crypto services, reported a rebound in its crypto business in January. From the company’s reported data:
- From December 2022 to January 2023, the value of crypto trading on Robinhood rose from $1.9 billion to $3.7 billion, a gain of nearly 100%.
- Over the same timeframe, crypto daily average revenue trades, or DARTs, rose 37%.
Coinbase has historically generated most of its revenues from trading, and we know that consumer trading is the key to that income pillar. So seeing a competing American trading company post encouraging trading data is, well, encouraging. Perhaps Coinbase will have some good news to report concerning the start of its year. If so, it could be a signal that consumer activity, moribund due to a prevailing crypto winter, is picking back up.
For Coinbase that’s good news, but for smaller crypto companies with slimmer cash balances, it could be downright manna.
More to come at the end of trading today when we get the new information.