Since its IPO in April 2021, Coinbase Global's (COIN 7.00%) shares have more or less been in freefall. Today the stock trades at around $60 per share, a far cry from its peak of $357.
But based on the company's first-quarter earnings report, there is reason to believe the worst could be in the rearview mirror. While profits and revenue were still far below their all-time highs, Coinbase's numbers showed that the company is able to deliver even with its back against the wall.
Here's what stood out most from its earnings and why it matters.
Highlights from Q1
Despite the company still being unable to turn a profit, it narrowed the gap between revenues and expenses to its closest point in more than a year. With total revenue coming in at around $736 million and expenses hovering at $896 million, there is still some ground to be made up. Yet, even with the lack of income, the most recent quarter blew estimates out of the water as analysts anticipated a loss of $1.45 per share but ended up being in the green at $0.15 per share. Revenue also came in about 18% higher than estimates.
COIN Net Income (Quarterly) data by YCharts
Fees from transactions used to make up the bulk of the company's profit, but since the crypto space entered a bear market in late 2021 and those fees dwindled, Coinbase has prioritized diversification of revenue streams through the development of unique products and services.
These efforts have been underway for a few quarters now, and they look to finally be bearing fruit. While transaction volume rose in Q1, which helped pad the bottom line, subscriptions and services grew by 28% to $362 million, which represented 49% of total revenue, their highest percentage yet. Providing the bulk of that revenue were two services in particular: blockchain rewards and interest income.
Representing 10% of the company's revenue for the last three quarters, blockchain rewards continue to prove to be a reliable source of revenue. Even though they remain down 10% from last year, these products allow customers to stake their cryptocurrencies and earn interest. By making this complex process much simpler, Coinbase has attracted even some of the most novice cryptocurrency investors to stake their holdings. As investors earn rewards, Coinbase takes a cut.
Adding to its profitable quarter, the company raked in serious income on interest generated from USD Coin (USDC +0.00%), a stablecoin that Coinbase helped to develop. By purchasing USDC through the app, users can earn an annual percentage yield of 4%. Coinbase then deposits those funds in banks to pay rewards to customers, and also takes a cut of the interest yielded.
With adoption of USDC growing and with the company also taking advantage of rising interest rates on the significantly larger fiat currency cash balances of its customer base, Coinbase earned $241 million from interest income alone representing nearly 33% of its total net revenue. Just a year ago interest income represented only 0.009% of total revenue. If rates stay high, they could continue to support this lucrative source of potential profit.
While a rally in the crypto market definitely helped bolster profits this quarter, perhaps the most underrated aspect contributing to its success was that Coinbase cut its expenses to near-record lows. By embracing remote work (which lowered its real estate costs), conducting layoffs that forced the company to automate and streamline processes, and implementing new data storage solutions, Coinbase trimmed its quarterly expenses to their lowest level since Q1 2021.
NASDAQ: COIN
Key Data Points
Expanding its global reach
When considering the combination of a crypto market rally, more diversified revenue streams, and diminishing costs, it's no wonder Coinbase soundly beat analysts' estimates for Q1. However, this might only be a sign of things to come thanks to one new business strategy it initiated this March -- Coinbase is going international.
Although it already has roots across the globe, in an effort to expand outside of the U.S., Coinbase implemented its "Go Broad, Go Deep" strategy to target "crypto-hubs" around the world that are looking to embrace the burgeoning asset class.
The endeavor is still fresh, but progress is already being made. Just last week, the company launched its own international exchange, which will allow customers to trade Bitcoin and Ethereum perpetual futures on up to 5% leverage. According to the company, "perpetual futures account for nearly 75% of global crypto trading volume," so there is considerable profit potential for it in that arena.
In addition, the company expanded access to its Coinbase One to another 34 countries in Q1, and entered agreements with countries such as Brazil, Singapore, and Canada to launch services and other products in those markets.
It might be a little too early to say, but the combination of this earnings report, the potential from its global expansion, and the likelihood that the cryptocurrency market is trending toward a bull market makes it seem as though Coinbase turned a corner as profits seem to be within reach. Although it took the greater part of two years to get to this point, Coinbase might have finally proven that its diversified suite of offerings can produce income in any market, and at today's levels, the stock could set up investors for long-term profits.
