Cryptocurrency has closely followed stock prices for a while. But while the majority of Wall Street hits the negative, crypto stays in the green, with Ethereum up more than 7% after Coinbase reports earnings for the third quarter.
Despite not reaching estimates, the company’s shares have soared by more than 10%. However, Coinbase Chief Financial Officer agrees it’s been a mixed quarter with “bright spots and headwinds.”
Thursday’s Closing Bell Sees Coinbase Report Q3 Earnings
Following the bell, Coinbase reported user numbers that beat analysts’ estimates, even though the third-quarter revenue missed the mark of $654 million and landed on $576 million, creating a larger-than-anticipated loss.
The revenue plummeted over 50% from the year before as traders collectively moved away from the crypto realm, causing financial downfalls for Coinbase — a $545 million loss after profiting more than $400 million 12 months prior.
But even though revenue was down, CFO Alesia Haas says the company experienced increased net income, noting Coinbase’s expertise in controlling costs and managing volatility.
It appears this bright spot comes from the company’s multi-product commitment, including subscriptions and services, and benefits from rising interest rates.
Coinbase’s User Numbers
Coinbase has steadily lost monthly transacting users throughout the year.
The company boasted 9.2 million users in the first quarter, which decreased slightly to nine million during the second quarter. However, the numbers dwindled further to 8.5 million in quarter three.
Even though it could be discouraging, StreetAccount reports that analysts at the firm were expecting a decline to 7.84 million. So, the current numbers prove positive.
Coinbase Benefits and Loses from Inflating Interest Rates
While the average consumer worries for their financial future amid rising interest rates, Coinbase is benefitting from the increase, thanks to its partnership with USTC, one of the leading stablecoins doing well in the otherwise-volatile environment.
Plus, the company earns interest from the balances held by its customers on the platform, as well as corporate cash. Hence, rising rates reflect positively on its earnings.
On the flip side, the increasing rates mean less discretionary spending from consumers, negatively impacting Coinbase’s trading revenue.
Haas explains, “it helps, and it hurts us,” promoting the benefits of having income streams with vastly different driving forces. Thus, the company’s multi-product approach to services.
Institutional Uptake VS Retail Uptake
Coinbase is currently seeing the second “crypto winter” over the last five years — and according to the CFO, this is important to note.
Hass mentions that each crypto cycle brings a huge number of retail customers and new institutions to the platform. However, retail clients then move straight into holding mode, preferring to hold during down markets, whereas institutions trade in all weathers.
So, while it may seem that Coinbase has experienced more institutional uptake than retail this quarter, that isn’t necessarily the case. Retail customers aren’t leaving the platform; they just aren’t trading, prompting the data-shown behavior change and wonderfully high retention rates.
As of November 4, 2022, the platform boasts 25% of the top 100 hedge funds as customers, and the company is continuing to see big-name partnerships become increasingly interested in the platform.
As Trading Volumes Move Offshore, Coinbase Revisits Plan to Capitalize
Coinbase is predominantly a retail platform. But as that market moves overseas, the exchange plans to focus more on market makers and other “pro traders,” despite them typically preferring to trade offshore.
Traders are looking for leverage, perps, derivatives, and more products unavailable in the USA. Therefore, Coinbase plans to diversify its product offerings and revisit its international strategy to balance its income moving forward.