Coinbase Stock Falls After Record Profits

Bitcoin’s wild price trajectory during the pandemic boosted Coinbase’s revenues and profits.

The company, which runs North America’s biggest cryptocurrency exchange by trading volume, witnessed a surge in users and transactions and posted record profits on its platform during the fourth quarter. Its income jumped to $840 million from $177 million a year ago. 

With revenues of $2.5 billion and earnings per share (EPS) of $3.32 per diluted share during the fourth quarter, Coinbase also bested analyst expectations of $1.97 billion in revenue and $1.94 in EPS respectively.

For the full year, Coinbase’s results were even better. It’s income and revenue skyrocketed by 1,380% and 1,947% to $7.3 billion and $3.6 billion respectively. But traders seemed none too impressed with Coinbase’s performance and sent its stock price down by 3.7% to $172.86. As of this writing, it is trading at $174, down 1.48% from its opening price.   

Their reticence may be due to the company’s reliance on crypto markets for its revenues. Coinbase’s record figures mirror Bitcoin’s pandemic fortunes. The cryptocurrency racked up price gains of 60% in 2021.

While it is impressive, the overall percentage figure can best be described passable as compared to the phenomenal gains of meme stocks and high flyers in the stock market. It also belies the crypto market’s daily price volatility and two record highs, one in April and another in November, that promised profits to investors stymied by low interest rates and increased investor appetite for risk. Together, both acted as a magnet for retail and institutional investors to invest in the asset class. Coinbase was a big beneficiary of that trend, recording a 400 percent increase to 11.4 million monthly transacting users (MTU) from 2020 figures. Its platform has 89 million verified users in total. 

2022 is a different story altogether. The Fed’s hawkish stance towards interest rates coupled with increased global political uncertainty has made investors fretful about risk and Bitcoin’s price has suffered. It is down by roughly 17.2% this year. 

The last time that Bitcoin fell from record highs, its price was gripped by a prolonged crypto winter. But Coinbase CEO Brian Armstrong discounted the possibility of a similar depression this time around. “…the thing is crypto’s kind of working now. And so, I don’t expect it to be quite that pronounced over time,” he said during the earnings call. But he also admitted that he had no idea about the cryptocurrency’s performance in the next couple of quarters. Coinbase has previously warned investors that its profits are tied to crypto prices, which are hard to predict.

An Investment Year

For now, the company is focused on making 2022 “an investment year” during which it plows money into enhancing its platform and invests in projects or buys up companies. During the earnings call, CEO Armstrong outlined a 70:20:10 strategy for Coinbase’s resource allocation, out of which 70% of the company’s cash will be devoted to its core activities, 20% to strategic bets and 10% on “moonshot efforts.”

The intent behind these initiatives to move beyond its reliance on trading transaction revenues from users, who flit in and out of crypto, as the main source of income. The company reported 3.6 million users earning yield on its platform in 2021, an increase of five times from the previous period. It also launched a platform for non-fungible tokens (NFT) for a “simpler NFT experience”, one that is focused on building a community of token holders.   

“We roughly want to operate the business at breakeven, smoothened out over multiple years if there are up and down cycles (in crypto prices),” Armstrong told analysts.

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