Detailed Analysis of Coinbase Q1 Financial Report: Net Profit Falls 94% Due to Unrealized Losses in Investment Portfolio, Acquisition of Deribit Makes a Strong Push in Derivation

Revenue performance fell short of expectations, with net profit experiencing a big dump of 94%, volume decreasing by 10%, retail investor trading income declining by 19% quarter-on-quarter, and institutional trading income falling by 30% quarter-on-quarter.

Written by: Felix, PANews

The American cryptocurrency exchange Coinbase announced its Q1 financial report on May 8 local time. Due to a cooling of market trading compared to the post-election rise in the previous quarter, both revenue and net profit fell short of expectations.

As of March 31, the adjusted net profit was $527 million. Earnings per share were $0.24, lower than the market expectation of $1.93. Total revenue was $2 billion, slightly below the expected $2.12 billion, and lower than the $2.3 billion in the fourth quarter of 2024. Q1 trading revenue fell 19% to $1.2 billion, with volume down 10%.

Coinbase (COIN) stock price fell by 2.67% in after-hours trading, possibly influenced by this news, after rising 5% in the previous trading day. COIN has fallen 16.83% since the beginning of this year.

Income

In Q1, the average volatility of cryptocurrency assets rose, with BTC hitting an all-time high in January. However, due to tariff policies and macroeconomic uncertainty, cryptocurrency prices fell in tandem with the overall market. Compared to the end of Q4, the total market capitalization of cryptocurrencies decreased by 19% to $2.7 trillion at the end of Q1.

In this context, Coinbase's revenue reached $2 billion, down 10% quarter-on-quarter; net income plummeted 94% quarter-on-quarter to $66 million, primarily due to a pre-tax loss of $597 million in its cryptocurrency asset portfolio, most of which was unrealized losses. Adjusted net profit was $527 million, and adjusted EBITDA was $930 million.

trading income

Coinbase's financial report shows that trading is its main source of income, accounting for more than 60% of its total revenue. Q1 trading revenue was $1.3 billion, a 19% decrease quarter-over-quarter. Coinbase's total spot trading volume fell by 10% quarter-over-quarter to $393.1 billion, but it outperformed the global spot market, which saw a 13% decrease in volume. In terms of derivatives, Coinbase's trading volume reached $80.36 billion, with market share continuing to grow.

Among them, in Q1, the retail investor volume was 78.1 billion USD, a decrease of 17% compared to the previous quarter. The retail investor trading income was 1.1 billion USD, a decrease of 19%, which is basically consistent with the decline in volume. In terms of institutional trading, the institutional trading volume was 315 billion USD, a decrease of 9% compared to the previous quarter, and the institutional trading income was 9.9 million USD, a decrease of 30%.

Aside from the impact of the macro background, the second factor for the decline in revenue compared to the previous period is the derivatives business. The financial report states that Coinbase is investing in trading rebates and incentive measures to build liquidity and attract customers. These rebates and rewards have been deducted from institutional trading revenue.

Other trading income

Q1 other trading revenue was $68 million, flat quarter-on-quarter. The number of trades on Base grew by 16% quarter-on-quarter, but the average income per trade fell by 21%.

Subscription and service revenue

Q1 subscription and service revenue was $698 million, a quarter-on-quarter increase of 9%, mainly due to the growth of stablecoin and Coinbase One revenue, with USDC's market cap hitting a historical high of over $60 billion. However, blockchain rewards revenue fell by 9% quarter-on-quarter, partially offsetting this growth. The primary reason for the decline was the quarter-on-quarter drop in average asset prices, particularly for ETH and SOL.

Q1 stablecoin revenue increased by 32% quarter-on-quarter, reaching 298 million USD. Coinbase stated that this growth was partly offset by lower average interest rates. The average holding of USDC in Coinbase products increased by 49% quarter-on-quarter, reaching 12.3 billion USD.

Other subscription and service revenues amounted to $141 million, a 5% quarter-over-quarter increase. The number of subscribers to Coinbase One reached a record high in Q1, and the Coinbase One Premium service ($300 per month) also saw growth.

Expenditure

Q1 total operating expenses were $1.3 billion, a quarter-on-quarter increase of 7%, or $91 million, mainly due to increased variable costs resulting from market activity at the beginning of the quarter and losses on crypto assets held for operations. Technology and development, general and administrative management, as well as sales and marketing expenses collectively increased by $40 million, a quarter-on-quarter growth of 4%, mainly due to increased marketing spending (including performance marketing and USDC rewards) and rising customer support costs. At the end of this quarter, Coinbase's full-time employees increased by 5% quarter-on-quarter, reaching 3,959.

The transaction fees amounted to $303 million, accounting for 15% of net income, a 4% decrease quarter-on-quarter. The decrease was mainly due to reduced trading activity by clients and lower blockchain reward fees associated with the decline in average asset prices.

Technical and development expenses amounted to $355 million, a 4% decrease quarter-over-quarter. The primary reason for the decline is that, despite an increase in the total number of employees, personnel-related costs have decreased. General and administrative expenses were $394 million, representing a 9% increase quarter-over-quarter. The growth is mainly attributed to increases in customer support and personnel-related costs. Sales and marketing expenses were $247 million, reflecting a 10% increase quarter-over-quarter.

Outlook

In April, Coinbase's total trading revenue was approximately $240 million. Coinbase expects that Q2 subscription and service revenue will be between $600 million and $680 million, as the expected quarter-on-quarter growth in stablecoin revenue will be offset by the decline in blockchain reward revenue caused by falling asset prices; transaction fees will account for about 15% of net revenue; technology and development, as well as general and administrative expenses will be between $700 million and $750 million.

It is worth mentioning that Coinbase is making strides in the derivatives market, having announced the acquisition of Deribit, the world's largest Bitcoin and Ethereum options exchange, for $2.9 billion, which includes $700 million in cash and 11 million shares of Coinbase common stock, but is subject to customary purchase price adjustments. This transaction is still subject to regulatory approval and other customary closing conditions, and is expected to be completed by the end of the year. Last year, Deribit's open interest exceeded $30 billion, with a volume of over $1 trillion.

Coinbase CFO Alesia Haas stated during the earnings call: "We expect Derebit to immediately enhance our profitability and increase the diversity and sustainability of our trading revenue."

In addition, Coinbase CEO Brian Armstrong stated during the investor conference call that this quarter, Coinbase will launch a pilot program allowing businesses to make payments and expenditures using stablecoins.