Coinbase posts big revenue beat but expects trading volume to fall in the first quarter

Coinbase reported fourth-quarter earnings that beat analyst estimates after the bell on Thursday. Shares bounced around after the report. They were down about 5% in extended trading by the end of executives’ call with analysts. Here are the key numbers:

• Earnings per share (EPS): $3.32, versus $1.85 expected, according to a Refinitiv survey of analysts
• Revenue: $2.5 billion, versus $1.94 billion expected, according to Refinitiv

The company predicted that retail monthly transaction users (MTUs) and total trading volume during the first quarter would be lower than the prior period. Coinbase attributed the change to decreased crypto asset volatility and a 20% decrease in crypto market capitalization quarter to date. Declining market cap is driven by macroeconomic factors like geopolitical instability and the Federal Reserve signaling a tightening of financial conditions, the company said. Coinbase said it expects subscriptions and services revenue to be lower in the current quarter because of falling crypto asset prices. MTUs jumped to 11.4 million in the prior quarter, up from 7.4 million in the third quarter; Coinbase saw a decline in MTUs between the second and third quarters. It also reported net income doubled to $840 million in the fourth quarter compared with the prior period, or several times the year-earlier quarter, when it reported $177 million. The report comes after major cryptocurrencies saw a weak month in December, despite an overall explosion in value in 2021. Investors blamed the year-end slowdown on concerns about cryptocurrency’s energy consumption and on macroeconomic factors like the rise of the Covid-19 omicron variant. On the company’s call with analysts, CEO Brian Armstrong shot down the idea that the sector could be entering a new “crypto winter,” which is essentially a bear market. Armstrong said that’s because of the change in significant use cases of cryptocurrency, which will make for a different result than earlier cycles of crypto winters and summers. “I don’t expect it to be anything quite that pronounced over time,” Armstrong said, referring to previous crypto winters. Coinbase warned shareholders in the previous quarter that its stock should be considered a long-term investment because its business is “volatile.” That reality has been demonstrated in recent weeks as major cryptocurrencies like bitcoin fell amid concerns that Russian troops would invade Ukraine. The incursion has also led some analysts to question the idea that bitcoin could act as a safe-haven currency in times of geopolitical instability. Coinbase did warn in its letter to shareholders that 2022 will continue to have a fair amount of uncertainty for its business. “We enter 2022 with even more unknowns, which make our business all the more difficult to forecast,” the company wrote, pointing to “global macroeconomic headwinds” on top of unpredictable crypto asset prices, rising interest rates and inflation. But, it said, on the other hand, that it sees increased opportunities and adoption of cryptocurrency. CFO Alesia Haas said that while Coinbase’s stock moves have been largely tied to changes in cryptocurrency prices, the company hopes investors ultimately take into account the ways it is diversifying its platform and decouple the two factors. She noted that Coinbase is launching a non-fungible token (NFT) platform and that NFT prices and volume are “less correlated with other crypto assets.”