Coinbase Q2 Earnings Beat & Q3 Outlook

Coinbase Reports Strong Second Quarter Earnings

Following today’s market close, Coinbase announced its second quarter earnings, showcasing a period of substantial financial performance.

Throughout the quarter, Coinbase achieved a total revenue of $2.23 billion. This contributed to a net income of $1.61 billion for the company over the three-month timeframe.

A significant factor in these results was a one-time gain of $737.5 million. This arose from a “tax benefit” related to Coinbase’s direct listing conducted earlier in the quarter.

Focus on Adjusted EBITDA

Consequently, greater emphasis is placed on the company’s adjusted EBITDA metric. This is a figure typically given less weight, but is more indicative of core profitability in this instance.

Coinbase reported an adjusted EBITDA of $1.1 billion for the period.

Exceeding Market Expectations

The company’s performance surpassed market forecasts. Revenue expectations stood at $1.85 billion, and adjusted EBITDA was predicted to be $961.5 million, according to Yahoo Finance.

Key Data Insights

Beyond the financial figures, Coinbase released compelling data offering insights into the current state of the cryptocurrency market.

A detailed examination of this data will provide a clearer understanding of the broader crypto economy.

Trading Volume Analysis

Two key datasets from Coinbase’s second quarter results require examination. The first concerns the number of monthly transacting users and the total trading volume recorded.

The continued addition of Monthly Transacting Users (MTUs) during Q2 was noteworthy, as was the company’s overall trading volume, especially considering the decline in the platform’s asset value. Coinbase successfully increased trading volume despite a general decrease in cryptocurrency prices during this period.

As stated by the company, “[d]espite fluctuations in price, we observed billions of dollars in net asset inflows and an increase in new customers throughout Q2.”

The subsequent dataset provides a detailed breakdown of trading volume, categorized by source and type:

The increase in retail trading volume from the first quarter of 2021 to the second quarter is significant for a single quarter. However, the rate at which Coinbase expanded institutional volume during the quarter is even more substantial, representing a considerable achievement.

For those more focused on cryptocurrency than financial details, the second set of figures is particularly interesting. Trading volume for Ethereum surpassed that of Bitcoin, with “other” cryptocurrencies accounting for more than double Bitcoin’s volume.

Could this signify a shift in dominance? The company identified three contributing factors, with the second being the most compelling. According to the earnings report:

Essentially, the innovative capabilities of the Ethereum blockchain are fueling trading activity in its native coin, Ether. While Bitcoin remains the oldest cryptocurrency, its leading position may be facing challenges. Bitcoin still represents the largest asset on Coinbase, accounting for 47% of the total.

Let's now turn our attention to revenue figures.

Revenue Overview

Although institutional trading volume contributed significantly to Coinbase’s growth, the company’s revenue structure remained largely dependent on retail activity. The following data illustrates this:

The growth in transaction revenue from Q1 to Q2 is self-explanatory and was a primary factor in the company’s robust overall performance during the second quarter. Equally noteworthy was the substantial increase in subscription and services revenue, nearly doubling from $56.4 million in Q1 2021 to $102.6 million in the recent period.

While Coinbase primarily operates as a transaction-based company, its subscription and services revenue is becoming increasingly important in terms of overall revenue contribution.

Now, we will address some less favorable aspects.

Coinbase Performance in Q3 2021

Coinbase’s initial performance in the third quarter is a key point of discussion. The company itself provided commentary outlining the shift in user activity.

Monthly Transacting Users (MTUs) in Q2 reached 8.8 million, accompanied by a total trading volume of $154 billion when averaged across the quarter’s months. Consequently, July represented a notably weaker period for Coinbase compared to its average monthly performance during Q2.

While August showed improvement over July, this offered limited reassurance. Early indications suggested Coinbase’s business volume would be lower in Q3 than in either Q1 or Q2.

This potential downturn likely explains the muted market reaction to Coinbase’s otherwise robust Q2 earnings report. Investors familiar with the cryptocurrency exchange landscape understand the inherent volatility of the sector.

A decline following a series of strong quarters is, therefore, not entirely unexpected. It’s a factor that seasoned investors are prepared to consider.

As of the time of writing, Coinbase shares are trading at $267.55 in after-hours trading. This represents a modest decrease of approximately 0.75%. The change is relatively minor.

Overall, Coinbase delivered a highly successful second quarter.