Detailed analysis of Coinbase's Q1 financial report: net profit fell by 94% under the impact of unrealized losses in the investment portfolio, strong push for derivation acquisition of Deribit.

Editor: Felix, PANews

U.S. cryptocurrency exchange Coinbase announced its first quarter (Q1) financial report on May 8, local time. Due to a cooling of market trading compared to the rise after the U.S. elections 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, below the market consensus expectation of $1.93. Total revenue was $2 billion, slightly lower than the expected $2.12 billion, and below the $2.3 billion for the fourth quarter of 2024. Q1 trading revenue fell 19% to $1.2 billion, with trading volume down 10%.

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

Income

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

Against this backdrop, Coinbase's revenue reached $2 billion, a quarter-on-quarter decrease of 10%; net income plummeted 94% quarter-on-quarter to $66 million, primarily impacted by a $597 million pre-tax loss in its cryptocurrency asset portfolio, most of which was unrealized loss. 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 over 60% of its total revenue. Q1 trading revenue was $1.3 billion, a decrease of 19% quarter-on-quarter. Coinbase's total spot trading volume decreased by 10% quarter-on-quarter to $393.1 billion, but outperformed the global spot market, which saw a 13% quarter-on-quarter decline in trading volume. In terms of derivatives, Coinbase's trading volume reached $803.6 billion, with its market share continuing to grow.

In Q1, the retail trading volume was $78.1 billion, a decrease of 17% month-on-month. Retail trading income was $1.1 billion, down 19%, which is basically consistent with the decline in trading volume. In terms of institutional trading, the institutional trading volume was $315 billion, a month-on-month decrease of 9%, and institutional trading income was $9.9 million, down 30%.

Apart from the influence of the macroeconomic background, the second factor for the month-on-month 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 revenue was $68 million, unchanged quarter-on-quarter. The number of transactions on Base increased by 16% quarter-on-quarter, but the average revenue per transaction decreased by 21%.

Subscription and Service Revenue

Q1 subscription and service revenue was $698 million, a quarter-over-quarter increase of 9%, mainly due to the growth in stablecoin and Coinbase One revenue, with USDC's 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 a quarter-over-quarter decrease in average asset prices, particularly for ETH and SOL.

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

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

Expenditure

Q1 total operating expenses were $1.3 billion, an increase of 7% quarter-over-quarter, or $91 million, mainly due to increased variable costs from heightened market activity at the beginning of the quarter and losses on crypto assets held for operations. Technology and development, general and administrative, and sales and marketing expenses collectively increased by $40 million, a 4% rise quarter-over-quarter, primarily due to increased marketing spending (including performance marketing and USDC rewards) and higher customer support costs. At the end of the 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 decrease of 4% quarter-on-quarter. The quarter-on-quarter decrease was mainly due to a reduction in customer trading activity and a decrease in blockchain reward fees related to the decline in average asset prices.

Technical and development expenses amounted to $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 costs decreased. General and administrative expenses were $394 million, a 9% increase quarter-over-quarter. The growth was mainly due 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 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 a decline in blockchain rewards 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 a push into 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 the acquisition price is subject to customary adjustments. This transaction is still pending approval from regulatory authorities and must meet 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 an investor conference call that this quarter, Coinbase will launch a pilot program allowing businesses to use stablecoins for payments and expenses.

Related reading: $2.9 billion record acquisition: Coinbase swallows options king Deribit, bringing major changes to the crypto derivatives market.