Coinbase Earnings Disappointment Mitigated by USDC Interest Income

Coinbase posted lower-than-expected third quarter revenue but beat on earnings per share after the close Thursday, sending the stock whipsawing in after-hours trading. 

The cryptocurrency exchange reported $590 million for the quarter. Analysts had projected $641 million. Transaction revenue — historically Coinbase’s biggest money-maker — was down 44% from the second quarter. 

“As I look back at the quarter, obviously there were macro headwinds, and that ties directly into our trading revenue,” Coinbase CEO Brian Armstrong said during the company’s earnings call Thursday. 

Coinbase, like competitor Robinhood, benefitted from interest income this quarter. The exchange, which owns stablecoin USDC along with issuer Circle, collects interest payments on the stablecoin’s reserves. With ever-rising rates, the payouts have increased. 

In the second quarter, Coinbase’s interest income increased five times to $32.5 million. In the third quarter, the figure jumped 213% to $101.8 million. 

Monthly transacting users fell to 8.5 million, down from 9 million in the second quarter. 

“Macro conditions deteriorated in Q3, resulting in the daily average crypto market cap and volatility declining 30% and 24% sequentially, respectively,” Coinbase wrote in its shareholder letter. “This drove lower crypto trading volume and a continued shift in our retail customer’s behavior from trading to ‘hodl’ing.’”

Regulatory clarity is going to be essential to bringing back token prices and interest in the crypto industry, Armstrong said. 

“There’s an opportunity to see the token prices potentially decouple from the broader macro environment, and we don’t know if that will happen,” Armstrong said. “Unfortunately, regulation by enforcement [is having] pretty chilling effects on the US market. It’s harming US industries in the sense that it’s encouraging them to go offshore.”

The earnings come a day after Coinbase recorded a major departure: Chief Product Officer Surojit Chatterjee said he was leaving the company after about a year and a half. 

“It’s time to get off the ride and catch my breath,” he wrote on LinkedIn Wednesday. 

COIN ended the New York trading session down 8.1%. The stock dropped an additional 2% in after-hours trading on earnings, before bouncing back and rallying 7.5% as of 4:35 ET.

“We’re taking a very trusted compliance approach, globally,” Armstrong said. “We’re not trying to cut any corners. I think that’ll pay off for us.” 

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