Coinbase Wednesday reported weaker-than-expected third-quarter results, weighed down by muted trading in the cryptocurrency market.
While trading is likely to be more lively in the fourth quarter, an October drop in the price of ether could offset current quarter growth in subscription and services, the company said.
The stock was last lower by 4% in extended trading. Earlier it fell as much as 7%.
Here’s what the company reported for the third quarter compared with what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 28 cents vs. 41 cents expected
- Revenue: $1.21 billion vs. $1.26 billion expected
Coinbase, which operates the largest U.S. marketplace for buying and selling cryptocurrencies, reported net income of $75.5 million, or 28 cents per share, compared with a year-ago loss of $2.3 million, or 1 cent a share.
Net income in the latest quarter included $121 million in pretax losses on Coinbase’s crypto investment portfolio, the vast majority of which were unrealized, as crypto prices were lower on Sept. 30 compared with June 30.
Within its core business, revenue from retail trading grew 98% to $483.3 million from the previous year, while institutional revenue brought in $55.3 million during the quarter, a 292% jump from the same period a year ago. Total transaction revenue was $572.5 million, a 98% increase year-over-year.
Revenue from Coinbase’s subscription and services – which includes stablecoins, staking and leverage for Prime traders among other things – saw a 66% increase from a year ago to $556.1 million.
The company forecasted flat growth in the category, reflecting a 10% decline in the price of ether in October compared to its third-quarter average, as well as interest rate cuts reflecting market expectations, among other headwinds.
The cryptocurrency market has been in a bit of a slump for much of this year, stuck in a narrow range between $55,000 and $70,000. Bitcoin has been absent any significant catalysts and suffered low volatility as investors monitored the U.S. presidential race and largely stood on the sidelines. Coinbase has been an active lobbyist for the crypto industry this year, spending millions backing pro-crypto political action committees.
Stablecoins — widely believed to be crypto’s killer app — were a bright spot in the third quarter. While crypto price action has been tepid, the market cap for stablecoins reached new highs, helping push Coinbase’s third-quarter stablecoin revenue to $246.9 million. That’s an increase of 2.6% quarter-over-quarter but up 43% from the same period a year ago.
Coinbase has a 50/50 revenue sharing agreement with Circle for the interest income of the reserves backing USD Coin (USDC), the second largest dollar-backed stablecoin on the market. That revenue could be challenged in the current quarter with interest rates expected to continue coming down.
The company also announced a $1 billion stock buyback in its earnings report.