Coinbase Shares Dip as Revenue Misses Expectations

Trading Volumes Lag Despite Subscription Growth

Coinbase experienced a downturn in its share price Thursday, failing to meet second-quarter revenue projections. While subscription revenue showed strength, it couldn’t counteract a slowdown in trading activity.

Mixed Financial Performance

For the quarter ending June 30, Coinbase reported a significant leap in net income to $1.43 billion, or $5.14 per share, a dramatic increase from $36.13 million, or 14 cents per share, in the prior year. This surge was bolstered by a substantial $1.5 billion gain, partly attributed to an unrealized gain from its investment in Circle, alongside $362 million from its crypto investment portfolio.

On an adjusted basis, the cryptocurrency exchange posted earnings of $1.96 per share, surpassing analyst expectations of $1.26. Revenue saw a modest rise to $1.5 billion from $1.45 billion a year earlier, narrowly missing the consensus estimate of $1.6 billion. Transaction-related revenue reached $764 million, falling short of StreetAccount’s forecast of $787 million.

Market Sentiment Shifts

The market had anticipated a less robust second quarter, following the first quarter’s enthusiasm. This earlier optimism was fueled by expectations of more favorable regulatory conditions for the crypto industry under the Trump administration.

However, as Washington’s focus shifted towards tariffs in the second quarter, speculative retail trading on centralized exchanges cooled. Concurrently, inflows into crypto ETFs and purchasing activity by crypto treasury companies provided support for asset prices.

Subscription and Stablecoin Dynamics

Coinbase’s retail trading volume, typically a more profitable segment, increased by 16% year-over-year to $43 billion. Despite this growth, it did not meet analysts’ surveyed expectation of $48.05 billion.

Revenue from subscriptions and services, encompassing stablecoins, staking, interest income, and custody, grew by 9% from the previous year to $655.8 million. This figure fell short of the $705.9 million projected by analysts.

Revenue derived from stablecoins, a major driver of crypto market action in the second quarter, came in at $332.5 million, closely aligning with estimates of $333.2 million. This represents a 38% year-over-year increase and a 12% rise from the first quarter.

Coinbase has notably benefited from heightened interest in stablecoins, particularly following the highly successful initial public offering of Circle, the issuer of the USDC stablecoin, in June. Coinbase maintains a significant revenue-sharing arrangement with Circle, capturing all revenue from USDC held on its platforms and approximately half of all other USDC revenue generated elsewhere.

Future Expansion Plans

While trading remains Coinbase’s core business, the company is actively pursuing increased consumer engagement through new products and services, leveraging recent pro-crypto policy shifts from Washington.

Coinbase announced it will soon broaden its offerings beyond cryptocurrency to include tokenized real-world assets, derivatives, prediction markets, and early-stage token sales within its app. This expansion will initially focus on users in the United States.

Despite the quarterly miss, Coinbase shares have appreciated by over 50% year-to-date, outperforming the S&P 500, which the stock joined in May. For context, as of October 26, 2023, the global stablecoin market capitalization stood at approximately $125 billion, demonstrating the growing significance of this sector (Source: CoinMarketCap).