Coinbase reported Q4 earnings Thursday. Here’s what stood out.

Coinbase’s fourth quarter results beat the estimates of most analysts, with one saying the company’s first quarterly net income in two years marks a turning point for the crypto exchange.

The company notched positive adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — in all four quarters in 2023, amounting to $964 million.

Alyssa Choo, a crypto equities specialist at Bitwise, said she believes the fourth quarter is “a major positive inflection point” for Coinbase’s business.

The company, for the first time since 2021, saw positive net income during the three-month period — generating $273 million. The net income came after seven straight quarters of net losses.

“These gains can be attributed to balance sheet strength and the appreciation of Coinbase’s corporate crypto investment portfolio,” Choo told Blockworks. 

Read more: Coinbase revenues surged to $954M in Q4 amid market rebound

Coinbase’s stock rose 3.3% Thursday and was up nearly 15% in pre-market trading at 8:45 a.m. ET.

Company executives made clear during the company’s Thursday earnings webcast that the newly launched US spot bitcoin ETFs are a positive for the exchange, and that it remains “confident” amid its legal battle against the Securities and Exchange Commission.  

Keep reading for a deeper look at the results, and the company’s outlook going forward.

A year of diversification, expense management 

Coinbase had set out in 2023 to generate positive adjusted EBITDA “in all market conditions.”

Its adjusted EBITDA hit $305 million during the fourth quarter, marking the fourth consecutive quarter that metric was positive.  

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The company’s success in that department came as it diversified its revenue base and significantly reduced its operating expense last year, compared to 2022.

Nearly half of the company’s $3.1 billion of total revenue last year came from subscriptions and services. The $1.4 billion from that business line — comprising revenues from stablecoins and custodial fees, as well as blockchain rewards and interest income — was up 78% year over year. 

Read more: Coinbase Q3 results signal its future as ‘crypto super app’: Analyst

While total operating expenses rose 11% in the fourth quarter, those expenditures for the full year declined 45% from the prior year. 

Retail traders returning

Coinbase’s transaction revenues rose by 83% quarter over quarter to $529 million. The boost came in part due to a surge in crypto asset prices and volatility, company executives said. 

“We believe the increases were driven by a variety of factors, principally excitement around bitcoin spot ETF approvals and broad expectations around improving macroeconomic conditions in 2024, which contributed broadly in the capital markets to ‘risk on’ activity,” the company wrote in its shareholder letter.

Coinbase’s trading volumes doubled from the third quarter to $154 billion.

Consumer trading volume increased 164% quarter over quarter to $29 billion. Institutional trading volume, which came in at $125 billion, saw a 92% increase from the prior quarter.

Choo noted that retail trading ranged between 28% and 40% of the exchange’s total volumes throughout the bull cycle in 2020 and 2021. That metric “bottomed out” last quarter, she added, as just 14% of total trading volume came from the retail segment.

Retail trading volume increased to account for 19% of Coinbase’s total volumes last quarter.

“In previous cycles, we’ve witnessed that as crypto market capitalization and trading volumes climb, retail trading follows suit,” Choo told Blockworks. “I expect this trend to play out throughout the rest of the year.”

Morningstar equity analyst Michael Miller noted that the retail volume increase is particularly positive for Coinbase given that the company charges higher fees for retail transactions.

Despite the majority of trading volume coming from institutions, fourth quarter retail transaction revenues were about $493 million — compared to institutional transaction revenue of $37 million.

“We knew that Coinbase’s Q4 trading volume was going to be strong, but the major question was where was that volume coming from,” Miller told Blockworks. “Seeing such strong retail engagement is a best case scenario for the company and kept the average fees resilient.”

Bitcoin ETF impact on Coinbase?

CFRA Research analysts downgraded Coinbase last month over concerns the company could be forced to cut trading fees to compete with the new low-cost spot bitcoin ETFs launched last month. 

But Coinbase CEO Brian Armstrong said during the Thursday earnings webcast that such funds are “a win-win” for the company.

The crypto exchange is custodian of eight of the 10 US spot bitcoin ETFs. In addition to collecting custodial fees, Coinbase generates revenue by helping financing via its Prime product and through offering financing for trade settlement, the CEO added.

Read more: Another bitcoin ETF just joined the $1B assets club. Will it be the last?

“For anybody worried about cannibalization, ETFs have been positive for the industry, which has been additive for Coinbase,” Armstrong said. “We’re seeing elevated engagement and net inflows across both retail and institutional Q1 to date.”

One of the big questions for Coinbase in 2024 will be how resilient the current crypto rally ends up being, Miller said. 

Bitcoin’s price was above $52,000 on Friday morning, up more than 10% from a week ago. 

“Cryptocurrency is inherently volatile so it’s hard to project current strength throughout the rest of the year,” Miller noted. “That said, we had a sell-the-news correction following the ETF approvals and markets recovered just fine, so cryptocurrency markets are clearly strong right now.”

SEC lawsuit remains unresolved

Analysts continue to note Coinbase’s unresolved lawsuit as a point of uncertainty.

The SEC sued the company last year for allegedly operating an unregistered securities exchange — claims Coinbase has denied. Coinbase Chief Legal Officer Paul Grewal said the timeline for a resolution in this case remains unclear.

Counsel for both sides appeared before a federal judge in Manhattan last month to argue why the case should or should not continue. Though Presiding Judge Katherine Polk Failla voiced concern that the SEC’s latest interpretation of securities laws could be too broad, the court has not yet granted or dismissed Coinbase’s motion to dismiss the charges.

“It’s always very hard for defendants to entirely dismiss any case at this stage, something that court statistics make clear,” Grewal said on the Thursday webcast. “But we strongly believe that we are right as a matter of law, and we were grateful to see the court’s careful attention to this matter and deep understanding of the issues at the oral argument.”

The court could dismiss none, some, or all of the claims, the chief legal officer added. Any claim not dismissed will then be subject to discovery — a process in which both sides gather information in preparation for trial. 

Coinbase will get a chance to file a motion for summary judgment after discovery that could end the case before trial, Grewal noted.

“Whether the case goes to trial or is dismissed, we will get the clarity we have long sought,” he said. “We are confident in the outcome, whether it comes later or it comes sooner, because we’re right on the facts and right on the law.”

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