Coinbase Crypto Exchange Post $557 Million Loss With Eyes on Expenses

Coinbase Crypto Exchange Post $557 Million Loss With Eyes on Expenses

While the $629 million in revenue for the three-months ended in December was higher than the average analyst estimate of $581 million, it was about a quarter of the $2.5 billion registered in the year-earlier period. The loss, which was equal to $2.46 a share, was compared with net income of $840 million, or $3.32, in the 2022 quarter, the company said in a statement Tuesday. Trading volume missed estimates. The company expects first-quarter subscription and services revenue between $300 million and $325 million.

The loss was the fourth consecutive one for Coinbase, which has suffered from the wild fluctuations of crypto prices. The firm cut 20% of its staff in January, after laying off 18% of its staff last June. Coinbase noted in an investor letter Tuesday that 2023 will be a “year of regulatory focus and we believe our strong foundation will make us a net beneficiary of this new environment.” Coinbase said it was operating toward the goal of improving adjusted Ebitda, a measure of profitability before some costs.

Brian Armstrong, chief executive officer of Coinbase, said on earnings call that the company has evolved to aim for generating “adjusted Ebitda in all market conditions,” rather than operating with a goal of roughly breaking even across cycles.

In an interview, Chief Financial Officer Alesia Haas didn’t rule out more layoffs to improve financial results. The company doesn’t expect to meaningfully increase its headcount, which is anticipated to be about 3,650 people.

Coinbase CFO Doesn’t Rule Out More Layoffs to Improve Financials

While Coinbase has seen a pickup in trading volume closely tied to its bread-and-butter trading fees in recent weeks, as crypto prices rallied, it’s facing mounting uncertainty. Several of its newer businesses, such as Stablecoin revenue and staking, in which users earn yields on coin deposits, may face regulatory scrutiny, after recent regulatory actions against rivals.

Coinbase suggested that it might consider legal action if regulators determine that a cryptocurrency on its platform is a security, according its annual report, which was released Tuesday.

Paul Grewal, chief legal officer of Coinbase, spoke of the challenges of registering crypto products with the U.S. Securities and Exchange Commission.

“Coinbase is quite open and eager to seek a path to registration where one is made available,” Grewal said during the earnings call. “I think it’s fair to say that at this time the path for registration for products and services that may qualify as securities has not been open, or at least readily or easily open. So that’s proven to be challenging.”

It’s also been losing market share, which dropped from 5.9% in November to 4.1% in February, according to CryptoCompare. The world’s biggest crypto exchange, Binance, has gained share, reaching nearly 60% in February, according to the researcher. Coinbase noted in the investor letter that it gained overall trading volume market share in the fourth quarter.

Assets on the platform fell to $80 billion, down 71% from a year ago. “At the end of the day, it’s a brokerage firm and if you don’t have the assets, you don’t have the business,” David Trainer of New Constructs, told Bloomberg TV.

Coinbase’s shares have rallied by about 75% so far this year as a crypto price rally ramped up trading volumes. The stock, which fluctuated after the release of fourth-quarter results, tumbled 85% last year.

“My expectation is the stock should trade positively because of the encouraging outlook” driven by expense control and improving revenue trend, said Owen Lau, an analyst at Oppenheimer & Co.