Coinbase Shares Plummet 18% After Q3 Revenue Shortfall

Coinbase has released a middling profit statement according to the Q3, 2024 report by Coinbase. Sluggish crypto trading drove revenue below expectations, leaving investors disappointed. Despite this setback, Coinbase outlined growth points and strategic advancements, presenting a broader view of its performance.

Source: Coinbase

In Q3, Coinbase posted $1.2 billion in total revenue, reflecting a 17% decline from the prior quarter. Transaction revenue, central to earnings, dropped 27% to $573 million, impacted by an 18% decrease in total trading volume across the US spot market, a primary revenue source. Quarterly trading volume hit $185 billion, a noticeable dip from $226 billion in Q2.

Yet, some results remained positive. Coinbase achieved its seventh straight quarter of positive Adjusted EBITDA, reporting $449 million. This measure, excluding certain expenses, offers insight into operational profitability. Coinbase closed Q3 with a robust balance sheet, holding $8.2 billion in USD resources, a $417 million increase over the previous quarter.

Revenue Growth and Strategic Initiatives

Coinbase worked to broaden its revenue sources, achieving steady growth in staking, on-platform USDC, and custody services quarter by quarter. This consistent growth is important for Coinbase’s broader goal of strengthening and extending income beyond traditional trading. Subscription and services revenue fell by 7% to $556 million, though it saw positive impacts from increased stablecoin use and demand for custody options.

Source: Coinbase

In October 2024, Coinbase’s board approved a $1 billion share buyback, showing confidence in its future despite a recent stock drop. This program grants Coinbase the option to repurchase Class A common stock, offering potential gains in shareholder value.

Coinbase focused on building solid products to boost crypto usage, with a goal of bringing one billion users on-chain. Efforts included creating core infrastructure to simplify crypto access and raise network efficiency. Progress emerged in Q3 through deeper stablecoin integration across products and expansion of the Base network, now leading as a top Layer 2 (L2) platform by transaction count and total locked value.

Expanding Crypto Utility and Regulatory Clarity

Building on its growth strategy, Coinbase continues to enhance the utility of cryptocurrencies. Introducing Coinbase Wrapped BTC (cbBTC) allows users to leverage their Bitcoin holdings in decentralized finance (DeFi) applications. The company also has AI and blockchain integration with the collaboration of Tether.

Moreover, Base, Coinbase’s Ethereum L2 network, solidified its position as the top L2 network with a 55% quarter-over-quarter increase in transactions, maintaining low median fees under $0.01. This efficiency makes Base a cost-effective platform for on-chain activities, attracting more developers and users.

“Base is now the #1 L2 in both transactions and total value locked. The number of transactions processed on Base grew 55% Q/Q in Q3, surpassing all other L2 networks and 4x higher than Ethereum over the last 30 days of the quarter, said the report.

The company’s efforts extend beyond product development to influencing the regulatory landscape. With the 2024 US elections approaching, Coinbase has been actively involved in advocating for regulatory clarity. The company collaborates with organizations like Fairshake and StandWithCrypto to support pro-crypto legislation. 

Coinbase believes that the increasing number of American crypto owners, especially in swing states, has created a significant voting bloc that can drive favorable regulatory changes. This bipartisan support is seen as a positive indicator for the future of crypto regulations in the United States.

Q3 Financial Performance and Shareholder Insights

In Q3, Coinbase reported a net income of $75 million, which included $121 million in pre-tax losses on its crypto asset investment portfolio. These losses were primarily unrealized and resulted from lower crypto prices as of September 30, 2024, compared to June 30, 2024. After accounting for taxes, the net loss amounted to $92 million. Despite these losses, the company’s Adjusted EBITDA remained strong at $449 million.

Source: Coinbase

Operating expenses for the quarter were $1.0 billion, down 6% from the previous quarter. This reduction was partly due to lower transaction expenses, which decreased by 10% to $172 million. However, expenses related to technology and development, general and administrative, and sales and marketing rose by 3% to a combined total of $873 million. The increase was driven by higher stock-based compensation costs, reflecting Coinbase’s ongoing investment in its workforce and technological advancements.