Cryptocurrency exchange Coinbase reported revenue increased slightly from the previous quarter, capping off a year that saw the exchange’s business model stymied by depressed digital asset prices.
Company sales totaled $605 million in its fourth quarter, beating analyst expectations that anticipated revenue would come in at around $588 million, according to FactSet. The figure represents a near 75% decline compared to the $2.5 billion in revenue Coinbase disclosed for the same period a year ago–when crypto prices were at an all-time high.
"Looking back on 2022, we’re proud of our ability to execute and position our business as a regulated and legitimate market leader,” stated Coinbase Chief Financial Officer Alesia Haas. Coinbase said its increase in sales from the previous quarter was largely driven by subscriptions and services, which grew 34% from Q3 2022 to $283 million.
The leading cryptocurrency exchange in the U.S. lost $557 million during its final quarter of last year. The company's performance stretched annual losses for 2022 to $2.6 billion compared to a profit of $3.6 billion in 2021.
The exchange’s trading volume—which Coinbase derives a majority of its revenue from—fell to $145 billion from $547 billion a year ago. After trading volume exploded to $1.67 trillion in 2021 from just $193 billion the year before, Coinbase disclosed it slumped to $830 billion in 2022.
Coinbase also reported the number of monthly transacting users on its platform fell to an annual average of slightly under 9 million from 8.4 million in 2021, a sign that customers were more engaged despite the chills of crypto winter.
Assets on Coinbase’s platform declined in 2022 to $80 billion from $278 billion a year ago. The balance between its retail customers and institutional clients was evenly split at $40 billion each. Of those assets, Bitcoin made up 41% and Ethereum accounted for 26%.
It’s no surprise that Coinbase had a challenging quarter given the collapse of cryptocurrency exchange FTX and crypto lender Blocki, Oppenheimer Senior Analyst Owen Lau told Decrypt. Both companies filed for bankruptcy last November, shaking confidence in digital assets as cryptocurrencies like Bitcoin dipped as low as $15,480.
Lau said it’s possible, however, that Coinbase can turn its fortunes around this year and become profitable again if higher crypto prices coincide with a resurgence in trading. He also said that a higher degree of regulatory clarity around digital assets could be a boon to the company as well.
Coinbase has announced layoffs twice in the past year, trimming its headcount by roughly 1,100 employees last June and letting go of 950 employees last month. Lau said the reduced overhead could help coax Coinbase along its path to restoring profitability
Shares of Coinbase rose slightly in after-hours trading to $62.65.
Coinbase went public in 2021 and is the only exchange based in the U.S. that’s subject to requirements that come with trading on a public stock exchange, such as disclosures that give investors insight into a company’s financial health.
Aside from fees related to transactions on its platform, Coinbase sees revenue from providing custody of digital assets, staking, and other subscriptions and services. The company reported revenue from subscriptions and services totaled $792 million last year, up from around $517 million in 2021.
Amid a crackdown on crypto companies by the Securities and Exchange Commission, which includes a settlement with the exchange Kraken over its staking-as-a-service product, analysts at JP Morgan warned last Friday the agency’s regulatory blitz could constrain Coinbase’s earnings in the short term.
“Coinbase has focused on building subscription service businesses that are more stable and resilient to crypto market volatility,” the research note states. “However, recent actions by the SEC put different pieces at risk, including staking, USDC stablecoin and custody.”
The investment bank was previously confident that Coinbase’s customers would be automatically enrolled in staking Ethereum following the network’s Shanghai update, which would have padded the exchange’s revenue, but has reversed that position in light of recent events.
“While [Ethereum] staking still presents a revenue opportunity, we expect it will be much smaller and will take much longer to develop,” JP Morgan analysts stated.
Coinbase acknowledged the shifting regulatory environment concerning digital assets in a letter to shareholders, stating that “regulation is coming” and that the company believes it will be a beneficiary of potential policy developments in the future.
Lau from Oppenheimer said that the revenue Coinbase receives from staking, which the company reports as “Blockchain Revenue,” is somewhat overstated because the company passes about 75% of it on to its customers who stake their assets.
“The bottom line economic impact to Coinbase is way less than many others have reported,” Lau wrote in a recent research note, estimating that staking accounted for around 2.3% of Coinbase’s total revenue.
The company’s stock price has rallied since the beginning of this year alongside digital asset prices. While Bitcoin and Ethereum are both up over 39% to around $24,400 and $1,660, respectively, shares of Coinbase have soared 84%.
Editor's note: This article was updated after publication to include additional details from Coinbase's letter to shareholders and comments from Coinbase Chief Financial Officer Alesia Haas.