Revenue performance below expectations, net profit plunges 94%, trading volume declines 10%, retail trading income drops 19% quarter-on-quarter, and institutional trading income decreases 30%.
(Previous context: Just yesterday, Coinbase launched 24/7 Bitcoin and Ethereum futures trading in the U.S. after acquiring Deribit; perpetual contracts are also on the way.)
(Background information: Sovereign funds aggressively bought Bitcoin in April; Coinbase executives cited three factors driving capital inflow into BTC, and a weakening correlation with U.S. stocks.)
Coinbase Q1 Financial Report
On May 8, U.S. time, cryptocurrency exchange Coinbase announced its first-quarter (Q1) financial report. Due to a cooling market following the post-election surge in the previous quarter, both revenue and net profit fell short of expectations.
As of March 31, adjusted net profit was $527 million. Earnings per share were $0.24, significantly below the market expectation of $1.93. Total revenue was $2 billion, slightly lower than the anticipated $2.12 billion and below the $2.3 billion expected in Q4 2024. Q1 trading income fell 19% to $1.2 billion, with trading volume declining 10%.
In response to this information, Coinbase (COIN) shares dropped 2.67% in after-hours trading, following a 5% rise in the previous trading day. COIN has decreased by 16.83% since the beginning of this year.
Revenue
The average volatility of cryptocurrency assets increased in Q1, with BTC hitting an all-time high in January. However, due to tariff policies and macroeconomic uncertainties, cryptocurrency prices fell in tandem with the overall market. Compared to the end of Q4, the total cryptocurrency market capitalization decreased by 19% to $2.7 trillion.
In this context, Coinbase’s revenue reached $2 billion, a quarter-on-quarter decline of 10%; net income plummeted 94% to $66 million, primarily impacted by a $597 million pre-tax loss in its cryptocurrency asset portfolio, most of which were unrealized losses. Adjusted net profit was $527 million, with adjusted EBITDA of $930 million.
Trading Income
Coinbase’s financial report indicated that trading is its main source of income, accounting for over 60% of total revenue. Q1 trading income was $1.3 billion, down 19% quarter-on-quarter. Total spot trading volume on Coinbase decreased by 10% to $393.1 billion, though it outperformed the global spot market, which saw a 13% decline in volume. In terms of derivatives, Coinbase’s trading volume reached $803.6 billion, with a continuous increase in market share.
Among these, retail trading volume was $78.1 billion, down 17% quarter-on-quarter. Retail trading income was $1.1 billion, a 19% quarter-on-quarter decline, aligning closely with the drop in trading volume. For institutional trading, volume was $315 billion, down 9%, while institutional trading income was $99 million, a 30% quarter-on-quarter drop.
In addition to macro factors, the second reason for the quarter-on-quarter revenue decline was the derivatives business. The report stated that Coinbase is investing in trading rebates and incentives to build liquidity and attract customers. These rebates and rewards have been deducted from institutional trading income.
Other Trading Income
Q1 other trading income was $68 million, remaining flat quarter-on-quarter. The number of trades on Base increased by 16% quarter-on-quarter, but the average income per trade decreased by 21%.
Subscription and Service Income
Q1 subscription and service income was $698 million, a 9% quarter-on-quarter increase, primarily due to the growth of stablecoin and Coinbase One income, with USDC market capitalization hitting a historic high of over $60 billion. However, blockchain rewards income decreased by 9% quarter-on-quarter, partially offsetting this growth. The decline was mainly attributed to a decrease in average asset prices, particularly for ETH and SOL.
Q1 stablecoin income increased by 32% to $298 million. Coinbase noted that this growth was partially offset by lower average interest rates. The average holdings of USDC in Coinbase products grew by 49% quarter-on-quarter to $12.3 billion.
Other subscription and service income amounted to $141 million, a 5% quarter-on-quarter increase. The number of Coinbase One subscribers reached a historic high in Q1, and the Coinbase One Premium service ($300 per month) also experienced growth.
Expenditure
Q1 total operating expenses were $1.3 billion, a 7% quarter-on-quarter increase, or $91 million, mainly due to increased variable costs resulting from market activity at the beginning of the quarter and losses from cryptocurrency assets held for operations. Combined expenses for technology and development, general and administrative, and sales and marketing rose by $40 million, a 4% quarter-on-quarter increase, primarily due to increased marketing expenditures (including performance marketing and USDC rewards) and customer support costs. By the end of the quarter, Coinbase’s full-time employee count grew by 5% to 3,959.
Transaction expenses amounted to $303 million, accounting for 15% of net income, a 4% quarter-on-quarter decline. The decline was primarily due to reduced customer trading activity and lower blockchain reward costs associated with declining average asset prices.
Technology and development expenses were $355 million, down 4% quarter-on-quarter. The decrease was mainly due to reduced personnel-related expenses despite an increase in total employees. General and administrative expenses were $394 million, a 9% quarter-on-quarter increase, largely driven by increased customer support and personnel-related costs. Sales and marketing expenses were $247 million, a 10% quarter-on-quarter increase.
Outlook
In April, Coinbase’s total trading income was approximately $240 million. Coinbase expects Q2 subscription and service income to range between $600 million and $680 million, as the anticipated quarter-on-quarter growth in stablecoin income is expected to be offset by declines in blockchain rewards income due to falling asset prices; transaction fees are expected to account for about 15% of net income; and technology and development as well as general and administrative expenses are projected to be between $700 million and $750 million.
Notably, Coinbase is focusing on the derivatives market, announcing the acquisition of the world’s largest Bitcoin and Ethereum options exchange, Deribit, for $2.9 billion, which includes $700 million in cash and 11 million shares of Coinbase common stock, subject to customary purchase price adjustments. This transaction is still pending regulatory approval and other customary conditions, and is expected to be completed by the end of the year. Last year, Deribit had an open interest exceeding $30 billion and trading volume over $1 trillion.
Coinbase CFO Alesia Haas stated during the earnings call, “We expect Deribit to immediately enhance our profitability and increase the diversity and sustainability of our trading income.”
Additionally, Coinbase CEO Brian Armstrong mentioned in the investor call that this quarter, Coinbase will launch a pilot project allowing businesses to make payments and spend using stablecoins.
