Detailed Analysis of Coinbase Q1 Financial Report: Net Profit Plummets 94% Due to Unrealized Losses on Investment Portfolio, Revenue Performance Falls Short of Expectations

Compiled by: Felix, PANews

The American cryptocurrency exchange Coinbase announced its first quarter (Q1) financial report on May 8, local time. Due to a cooling in market trading from the surge after the US elections 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, below the market consensus expectation of $1.93. Total revenue was $2 billion, slightly below the expected $2.12 billion, and down from $2.3 billion in Q4 2024. Q1 trading revenue fell 19% to $1.2 billion, with trading volume down 10%.

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

Income

In Q1, the average volatility of cryptocurrency assets increased, with BTC reaching an all-time high in January. However, affected by tariff policies and macroeconomic uncertainties, cryptocurrency prices fell in tandem with the overall market decline. Compared to the end of the fourth quarter, the total market capitalization of cryptocurrencies dropped by 19% by the end of the first quarter, to $2.7 trillion.

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

Transaction Income

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

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

Apart from the impact of the macroeconomic background, the second factor for the quarter-on-quarter decline in revenue 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 income was $68 million, remaining flat quarter-on-quarter. The number of transactions on Base increased by 16% quarter-on-quarter, but the average income per transaction decreased by 21%.

Subscription and service revenue

Q1 subscription and service revenue was $698 million, an increase of 9% quarter-over-quarter, mainly due to the growth in stablecoin and Coinbase One revenue, with USDC market capitalization reaching a historic high of over $60 billion. However, blockchain rewards revenue decreased by 9% quarter-over-quarter, partially offsetting this growth. The main reason for the decline was the decrease in average asset prices quarter-over-quarter, particularly for ETH and SOL.

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

Other subscription and service revenue amounted to $141 million, a 5% quarter-over-quarter increase. The number of subscribers for Coinbase One reached an all-time 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 7% increase quarter-over-quarter, or $91 million. The primary reason for this was the increase in variable costs due to heightened market activity at the beginning of the quarter, as well as losses from crypto assets held for operations. The total expenses for technology and development, general and administrative, and sales and marketing increased by $40 million, a 4% quarter-over-quarter rise, mainly due to increased marketing expenditures (including performance marketing and USDC rewards) and higher customer support costs. At the end of this quarter, Coinbase's full-time employees increased by 5% quarter-over-quarter, reaching 3,959.

Transaction fees were $303 million, accounting for 15% of net income, a quarter-on-quarter decrease of 4%. The quarter-on-quarter decline was mainly due to reduced customer trading activity and a decrease in blockchain reward fees related to the decline in average asset prices.

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

Outlook

In April, Coinbase's total trading revenue was approximately $240 million. Coinbase expects its subscription and services revenue for Q2 to be between $600 million and $680 million, as the expected quarter-on-quarter increase in stablecoin revenue will be offset by a decline in blockchain rewards revenue due to 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 a push into the derivatives market, announcing 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 trading volume surpassing $1 trillion.

Coinbase's Chief Financial Officer 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 project allowing businesses to make payments and expenditures using stablecoins.