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

Subscription and services revenue topping transaction revenue for the second straight quarter is “a huge result,” Bitwise crypto equities specialist says


24K-Production/Shutterstock modified by Blockworks


Though Coinbase’s trading volumes have continued to drop, analysts said the crypto exchange’s third quarter results signal its other business segments could carry the company in future quarters.

The low volatility and broader “macro backdrop” contributed to Coinbase’s spot market trading volumes declining 24% quarter over quarter, the company said in its Thursday shareholder letter. Total transaction revenue was $289 million, down 12% from the prior three-month period — a fate analysts had expected.

Its adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — was $181 million. That figure was down slightly from $194 million in the prior three-month span, but positive for the third straight quarter. 

Read more: Coinbase posts earnings beat with $674M in Q3 revenue

Owen Lau, an executive director at Oppenheimer & Co., estimates that Coinbase can generate roughly $800 million in adjusted EBITDA for 2023. 

“It is a great outcome given the difficult crypto and operating environment,” Lau said. “If crypto markets turn around, [Coinbase’s] earning power can improve.”

The crypto exchange’s net loss was $2 million in the third quarter.

“I do think it’s notable that the company was effectively break-even despite continued weakness in cryptocurrency markets and low volatility,” Morningstar equity analyst Michael Miller said. 

The exchange’s operating expenses between July and September dropped 4% from the second quarter, to $754 million.

“Coinbase’s cost-cutting efforts have put the firm on a much better footing to be resilient during current conditions,” Miller added. “Comparatively the company lost over half a billion dollars during last year’s quarter despite having higher revenue.”

Subscription and services revenue proves critical

Alyssa Choo, crypto equities specialist at Bitwise, highlighted that Coinbase’s subscription and services revenue — at $334 million — topped transaction revenue for the second straight quarter.

The subscription and services business line includes revenues generated from stablecoins and custodial fees, as well as blockchain rewards and interest income.

“People think of Coinbase as a commission-based business, but that’s short-sighted,” Choo told Blockworks. “Commission revenue is a bridge to Coinbase’s real future, which is as a crypto super app — a center of gravity in the crypto universe that has multiple pathways to monetization, including Base, stablecoins and much more. We saw those other pathways thrive this quarter.”

Coinbase has shifted away from a transaction-based revenue business model in recent years to focus on products with “stickier” revenue, Choo noted.  

“This has been the reality these last two quarters and will likely continue to be the trajectory of the company as it leans on stablecoin revenue, custodial fee revenue and longer term, sequencer fees from its layer-2 network, Base,” she told Blockworks.  

Coinbase’s stablecoin revenue — derived from its arrangement with USDC issuer Circle — comprised about half of its subscription and services revenue during the third quarter. It hit $172 million, up from $151 million in the prior quarter. 

USDC’s market capitalization has plummeted over the last year. Berenberg Capital Markets analyst Mark Palmer previously told Blockworks that the stablecoin’s dropping market cap, as well as regulators targeting Coinbase’s staking services, put the exchange in a “tenuous” situation.

Still, Choo pointed out that Coinbase ended the quarter with $2.5 billion in on-platform USDC balances. This was up from $1.8 billion at the end of June. 

“I expect to see Coinbase’s stablecoin revenue continue to rise as a result of the rising rate environment and dramatic growth in stablecoin usage, given its many practical applications,” she said.

Coinbase’s stock price was $86.98 at 12 pm ET Friday — up 2.8% on the day. The price has climbed roughly 158% year-to-date — higher gains than bitcoin’s (BTC) price increase of 109% so far in 2023.

Looking ahead

Lau told Blockworks earlier this week that Grayscale Investments’ court win against the Securities and Exchange Commission, as well as what many viewed as a partial legal victory for Ripple Labs against the regulator, could bode well for Coinbase in its fight with the agency.

The SEC sued the crypto exchange in June for alleged securities violations — charges the company has refuted. 

Oral arguments for the company’s motion to dismiss are scheduled for Jan. 17, Coinbase wrote in its Thursday shareholder letter. 

“We are grateful for the court’s careful consideration and have full faith in the legal process,” the letter states. 

Miller has said the suit will continue to weigh on Coinbase and its stock “as its relationship with the regulator has really broken down this year.” 

Aside from that legal battle, the fate of spot bitcoin ETFs could impact exchange, some analysts agree.

Read more: Is bitcoin’s ETF-fueled rally to $35K premature? Well, maybe 

Choo said: “Not only will a spot bitcoin ETF be positive for the crypto market, increase liquidity and onboard new institutions [and] investors into the crypto economy, but Coinbase, as it’s the bitcoin custodian for many of the asset management giants that filed for a spot bitcoin ETF, is set to benefit from the custodial fees generated.”

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