📌 MUST READS

Coinbase Q1, 2023 Earnings: The Full Breakdown

What a difference 90 days makes.

On May 4, Coinbase (COIN) announced their Q1 2023 earnings results, with results showing significant improvement quarter over quarter.

When we reported on Coinbase’s earnings for last quarter, we described it as “another mixed bag,” stating that:

This quarter however, the company and its executives seemed to have changed their tune. CEO Brian Armstrong seemed to be telling the truth when he tweeted in late March that there was a “noticeable boost in morale” amongst Coinbase employees.

Now, as we do every quarter, let’s cover Coinbase’s quarterly earnings.

Financial Performance Looking Positive
First, looking at the financials, the company’s net revenue was up 22% quarter over quarter to $736 million. Although this is a very positive improvement, it is worth noting that it is still 27% lower than where it was a year ago at $1.2 billion. Of course, that was also a time of heightened crypto volatility.

Furthermore, the company showed a 37% decrease in recurring operating expenses quarter over quarter. Combined, this led to Coinbase posting a loss of $79 million in the first quarter, down from a $430 million loss a year ago.

Because analysts were expecting the company to report a loss of $316 million for the quarter, the stock, of course, skyrocketed more than 15% at the opening bell.

The company was also quick to point out it has “return to positive Adjusted EBITDA of $284 million,” the first time since Q1, 2022. Honestly, although great, this is really just an impact from reduced stock based compensation which we called out last quarter as embarrassing.

Trading Volume Is Flat, Take Rate Is Up
While on face value this may seem like a negative, the quarters’ flat trading volume actually represents the first quarter of this crypto bear market where volumes weren’t down.

In fact, monthly transacting users increased from 8.3 million to 8.4 million

Interestingly though, most of this increase was not in BTC and ETH:

Yet, somehow, BTC represented an increase in transaction revenue on a percent of total… how could that be?

It turns out that during the first quarter, Coinbase increased their pricing for retail traders using the company’s “simple” platform.

One could look at this from two different perspective, both good and bad:

Subscriptions and Services Continues To Grow
The company’s revenue from subscriptions and services increased by 28% quarter over quarter to $362 million.

The company defines these as blockchain rewards, custodial fee revenue, interest income, and “other” (mostly the Coinbase One product).

Although each segment was up on the quarter, interest income continues to be the major factor at more than $240 million in revenue. Almost $200 million of this was from USDC interest as the company now has ~$1.2 billion of USDC on their platform. The rest comes from customer fiat on the platform which is now at $5.4 billion.

With interest rates continuing to increase, we expect interest income to continue to provide needed income to Coinbase in Q2.

The Company is Walking the Talk When It Comes to Reducing Expenses
Last quarter we noted that:

This is exactly what happened.

The Q1 earnings report shows headcount at Coinbase now at 3,535, a reduction of nearly 1,000 employees.

Beyond just employee expenses, the company had a reduction in expenses in every category across the board.

Even Stock-based compensation was down 54% to $199 million, which was one of our major call outs last quarter.

Some Major Launches
During a time in which regulators are scratching at the company’s ankles, we have to give props to the team at Coinbase for continuing to ship interesting products and provide new offerings:

Regulation Looms As Always
We could probably sum up the bad aspects of Coinbase’s business in one word: regulation

The company continues to deal with regulation by enforcement, with the company receiving a Well’s notice from the SEC during the quarter.

Much of the Q&A also revolved around regulatory questions including a question around whether or not the company would leave the US. Brian Armstrong responded by stating:

Furthermore, in the shareholder letter, the company noted that:

As we have seen over and over again, we just don’t know what is going to happen in regards to regulation. It could have a negative impact on Coinbase, or it could absolutely be a boon to the business.

Concerns
Although there was significant progress quarter over quarter for Coinbase, with even the executives sounding more upbeat on the earnings call, we still have to point out our concerns…

The rest of this breakdown, can be found on our site. Just click the link below to continue reading.

SPONSORED

Sell This Popular Stock

Over 1 million people around the world follow Marc Chaikin, a Wall Street legend with 50 years of experience, for his surprisingly accurate stock predictions.

And he just gave them an urgent SELL ALERT for one of the most popular stocks in U.S. history – one that is scattered across several ETFs, funds, and retirement 401(k) accounts.

He says, "After years of breathtaking gains, this company's day in the sun is coming to an end. You must sell this stock – NOW!"

🔍 DEEP DIVES

An Introduction to Sam Altman’s Crypto Project, Worldcoin

Outside of Elon Musk, there’s no hotter name in tech right now than Sam Altman.

The trajectory of this 38-year-old entrepreneur has been nothing short of meteoric since he left Stanford in 2005. After swiftly climbing the tech ladder, he joined Y Combinator, a prominent startup accelerator, as a partner in 2011. His responsibilities expanded in 2014 when he assumed the position of President. During his tenure, Altman has been instrumental in investing in a multitude of tech startups.

By 2020, however, Altman then shifted his primary focus to OpenAI, serving as the CEO.

Now, unless you’ve been living on a deserted island for the last 6 months, you know that AI is all the rage these days – an ongoing revolution largely thanks to OpenAI’s release of ChatGPT, which reached 100 million users in two months, the fastest growing app on record.

The AI revolution comes with a long list of advantages (ChatGPT is a godsend for time management!) and, of course, uncertainties (could AI monopolize employment and become a vector for mass misinformation?) as well.

These uncertainties can be daunting, which is why Altman is spearheading a relatively under-the-radar project to address them.

Intriguingly, this project is anchored in blockchain technology: Worldcoin.

Rocky Beginnings
Worldcoin first hit the press in 2021. At that time, AI was a pipe dream. Concerns over its potential consequences were virtually nonexistent. But Altman, because of his work with OpenAI, knew otherwise.

AI was coming, and the time to prepare was now.

A chief concern of Altman’s was what people will do once AI enters the workforce. In a world without the need to work as much, how do people make a living? His answer: Universal Basic Income (UBI) derived from the immense capital gains an AI workforce would produce.

Thus, Worldcoin was born, initially described as a “collectively-owned global currency that will be distributed fairly to as many people as possible”. Basically, it was the crypto version of UBI.

It was (and still is) a super cool idea, but the way Worldcoin went about it turned a lot of people off, including us. The rockiness began when people realized they would only receive their UBI after scanning their eyeballs into a Worldcoin metal “orb” and really picked up when the MIT Technology Review exposed how Worldcoin recruited its first 500,000 users.

Then the crypto market crashed, AI took off, and people forgot about Worldcoin. That is, until this March.

Allow Me To Reintroduce Myself
Worldcoin’s new mission is to create a three-pronged product suite of:

The first part of this plan was fulfilled in March with the announcement of the proof-of-personhood protocol World ID. The idea behind World ID is to be a digital passport verifying you are a human while protecting your privacy. Thus, people who have a World ID can use it to sign into various web and crypto apps, proving that they are in fact a real person.

Although this is something that could prove crucial in the AI age of the internet where the lines between robot and man become increasingly blurry, the concerns over user privacy are still alive, as aspiring World ID’ers must verify themselves either through their phone or through an eye scan.

The World App
Another part of Altman’s plan (an app that enables payments) was recently fulfilled with the release of Worldcoin’s crypto wallet, World App.

On the surface level, World App is simply a minimalist crypto wallet. Existing on the Polygon blockchain, World App allows people to store and send Bitcoin, Ethereum, and the stablecoin DAI. In this regard, it’s really nothing special compared to the other wallet offerings on the market.

What makes World App different is its role in the broader Worldcoin vision. World App is where people will manage their World ID, claim their Worldcoin Grants (the UBI from Worldcoin’s token, due to be released later this year), and partake in the governance of the Worldcoin protocol. In this regard, World App is absolutely special compared to the other crypto wallets, especially if the vision of AI-funded UBI comes to fruition.

Why Does This All Matter?
A common criticism of crypto is that what it’s doing doesn’t really matter in the real-world. And, although we’ve highlighted projects with real-world use before, the truth is that these critics are largely right.

Too much of crypto is financial speculation and whale games.

Worldcoin is admirable because it aims for more. Using crypto to address two of the biggest issues stemming from the AI future (how one proves they are not a robot, or how one pays their bills if the robots replace their jobs) is a clever and inspiring use of blockchain technology.

Obviously, the project is not without its drawbacks, particularly in the user privacy realm. But, if they are able to remedy those ills, Sam Altman may just hit another homer in the coming years.

TWEET OF THE WEEK

Other Content You Might Enjoy

ABOUT COINSNACKS

Launched in December 2017, CoinSnacks is home to the longest continuously running crypto newsletter. Each week, we publish our cryptoasset musings to an audience of ~60,000 crypto enthusiasts and investors.

In a space flooded with new projects, research, and narratives, the average investor may feel overwhelmed or confused. CoinSnacks offers a solution by doing the digging for you, so you don't have to spend hundreds of hours sifting through the noise.

REACH OUR AUDIENCE

If you’re a brand interested in partnering with CoinSnacks to find your next customers, parter, or ally, we’d love to hear from you. Learn more here.