Coinbase says crypto markets have 'improved,' but rest of year is uncertain

Coinbase Global Inc. on Tuesday reported fourth-quarter results that beat estimates, and said the crypto market had “improved” so far in the first quarter but that the rest of the year remains cloudy.

The crypto-trading platform reported a fourth-quarter net loss of $557 million, or $2.46 a share, compared with a profit of $840 million, or $3.32 a share, in the same quarter in 2021. Revenue came in at $629 million, compared with $2.49 billion in the prior-year quarter. Trading volume fell to $145 billion during the fourth quarter.

Analysts polled by FactSet expected Coinbase
COIN,
-4.80%
to lose $2.52 a share, on revenue of $588 million. They expected trading volume of $145.7 billion.

Coinbase ended the quarter with average monthly transacting users — or retail users who trade at least once every four weeks — of 8.3 million. That was slightly above FactSet forecasts for around 8.2 million, but down from the same quarter in the prior year.

The company finished 2022 with cash and cash equivalents of around $4.43 billion, down from $7.12 billion in 2021.

Executives said the total crypto market cap was up 40% year to date through Feb. 17, and that Coinbase brought in $120 million of transaction revenue in January. But they cautioned against calling those figures any kind of trend.

“Given the unpredictability of crypto markets, we have limited certainty around the rest of the year,” they said.

Management said they were focused on improving profits and said “we do not expect to meaningfully increase our headcount compared to Q1 levels, which we anticipate to be in the neighborhood of 3,650 people.”

Shares fell 1.2% after hours, in bumpy trading activity.

The results follow a flight from crypto trading that began in 2021, as inflation and recession fears made traders more cautious over volatile assets, and which was punctuated last year by the collapse of crypto exchange FTX. However, shares of Coinbase have risen so far this year, in tandem with a rebound in the price of bitcoin
BTCUSD,
+1.07%.
The company last month also said it would slash around 20% of its workforce.

Still, D.A. Davidson analysts, in a research note last week, noted that U.S. regulators have begun clamping down more aggressively on crypto, following growing concerns about security and fraud. The Securities and Exchange Commission has proposed measures that would tighten up custody requirements, and the agency has targeted other companies over stablecoins — or cryptocurrencies whose value is pegged to another asset, like traditional money — and staking, a way to earn passive income on crypto holdings.

Coinbase last month agreed to a $100 million settlement after the New York state Department of Financial Services found “significant failings” in the exchange’s compliance protocols, making it vulnerable to “serious criminal conduct” like fraud and money laundering, the agency said.

“While we still agree with (management’s) view that improved clarity and a level playing field should ultimately prove to be good for both Coinbase and the sector overall, the near-term path looks increasingly treacherous,” the analysts said.

While Coinbase stock is up so far this year, over the past 12 months shares have fallen 64.3%. By comparison, the S&P 500 Index
SPX,
-2.00%
has fallen 7.1% over the past 12 months.

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