Coinbase (COIN 5.68%) just reported its fourth-quarter 2022 financial results, and they weren't great by most measures. Revenue declined by more than 50% for the year to $3.15 billion, and its net loss was $2.6 billion, or $11.83 per share.
Beneath the headline numbers, though, there were some positive trends for Coinbase. If you're a shareholder, these are the three biggest things you need to know about this cryptocurrency stock.
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Services and interest revenue
In the first quarter of 2023, management expects subscription and services revenue of $300 million to $325 million. That would continue its pattern of steady top-line growth from that piece of its business. It had revenue from that segment of $282.8 million in Q4 2022, and $91.4 million on a revenue-adjusted basis (keeping crypto prices constant) in Q4 2021.
There are two main reasons its services and interest revenue rose. The first is higher interest rates, which are driving returns on the $5.5 billion in cash on the balance sheet. But the bigger impact is Coinbase's 50% stake in the Center Consortium, which runs the USDC stablecoin. Coinbase doesn't break out that specific business, but it's a big reason interest income increased from $7.6 million in Q4 2021 to $182.2 million in Q4 2022.
Cash is king
The market's crypto winter is the main reason for Coinbase's operational weakness. The negative sentiment has been driven by the collapse of major players like crypto exchange FTX, uncertainty about the future of regulation, and fewer investors trading all speculative assets -- not just crypto -- amid rising inflation and interest rates.
Coinbase has a great chance to be one of the companies that survives this downturn and thrives in a crypto rebound. Not only does it have $5.5 billion in cash and equivalents on hand, but its operating cash burn was just $171 million in Q4, so it has plenty of money to support itself, even if the down market lasts for years.
In this case, cash isn't just king -- it's the key to survival for Coinbase. It could also ultimately be used for acquisitions of weaker rivals or related businesses.
Trading is down but not out
When Coinbase went public, its crypto trading business was its cash cow. In 2021, the company generated $6.8 billion in transaction revenue, but that dropped to $2.4 billion in 2022. That's a terrible trend, but Coinbase's trading business is still important.
Institutional trading volume didn't decline as much as retail in the past year, falling from $371 billion in Q4 2021 to $125 billion in Q4 2022. Retail trading volume plunged from $177 billion to $20 billion over the same period.
Coinbase still has retail trading tools, but it's moving more toward serving institutions, with trading as a gateway to services like staking and custody solutions. In the wake of FTX's collapse, Coinbase is gaining market share and expanding internationally, so this is still a business that could be very profitable long term.
Coinbase is a bet on crypto and Web3
The bottom line for investors is that an investment in Coinbase is an investment in the future of crypto and blockchain technology, and what's called Web3. If that becomes big business, I think Coinbase will reward its shareholders. But if it isn't, the company will struggle.
