Coinbase announces $1 billion share buyback and reports weaker-than-expected Q3 results due to stagnant cryptocurrency market

On October 30, 2024, Coinbase, the largest cryptocurrency trading platform in the United States, reported weaker-than-expected third third-quarter financial results that failed to meet Wall Street’s expectations.

The underperformance was largely due to sluggish trading activity in the cryptocurrency market. Although the company anticipates a potential increase in trading activity for the fourth quarter, an October drop in the price of Ether threatens to offset any potential gains in subscription and services revenue.

Coinbase shares dropped 3.61% on October 30, 2024. The decline reflects investors’ reactions to the missed expectations and signals cautious sentiment that currently the cryptocurrency market is unable to attract trading volume except Bitcoin.

Coinbase Q3 2024 earnings.

•  Total Revenue: $1.21 billion, which missed Wall Street's expectations of $1.26 billion1.

•  Earnings Per Share (EPS): $0.28, compared to analyst expectations of $0.451.

•  Net Income: $75.5 million, an improvement from a loss of $2.3 million in the same quarter last year.

•  Trading Volume: $185 billion, slightly above estimates.

•  Monthly Transacting Users: 7.8 million, close to the 7.88 million average estimate.

Coinbase reported earnings of 28 cents per share, below the 41 cents expected by analysts.

Similarly, revenue for the quarter reached $1.21 billion, falling short of the anticipated $1.26 billion.

Despite these shortfalls, Coinbase reported a net income of $75.5 million, or 28 cents per share, a positive turnaround from the previous year’s loss of $2.3 million, or 1 cent per share. Coinbase reported a net loss of $2 million in Q3 2023  which translates to -$0.01 per share.

One factor affecting the latest quarterly results was a pretax loss of $121 million from Coinbase’s cryptocurrency investment portfolio, driven by falling crypto prices between June 30 and September 30.

The majority of these losses remain unrealized but have impacted the company’s overall financial position.

Despite this setback, Coinbase saw encouraging growth in certain sectors of its core business. Retail trading revenue, which reflects transactions from individual investors, increased by 98% year-over-year, reaching $483.3 million.

Institutional revenue, driven by investments from financial institutions, reached $55.3 million for the quarter—a 292% increase compared to the same period last year.

Together, these segments brought total transaction revenue to $572.5 million, reflecting a year-over-year increase of 98%.

Revenue from Coinbase’s subscription and services segment—which encompasses stablecoins, staking, and leveraged products for advanced traders—also demonstrated substantial growth. This category grew by 66% year-over-year, contributing $556.1 million to the company’s overall revenue.

The cryptocurrency market overall has remained largely stagnant for much of 2024, trading within a narrow range of $55,000 to $70,000 for Bitcoin.

The market’s low volatility and lack of exciting new products in crypto markets as it used to happen when DeFi and NFTs boom, have left investors cautious.

Consequently, trading volumes have remained subdued, posing a challenge to Coinbase’s transaction-based revenue.

In response, Coinbase has increased its lobbying efforts, contributing millions to pro-crypto political action committees in an effort to promote favorable regulations for the industry.

Amidst the lackluster trading environment, stablecoins have emerged as a key growth area for Coinbase. Stablecoins have continued to grow, even as traditional cryptocurrency trading volumes stagnate.

In the third quarter, stablecoin revenue for Coinbase reached $246.9 million, marking a 2.6% increase quarter-over-quarter and a 43% increase from the previous year.

Coinbase has a 50/50 revenue sharing agreement with Circle for the interest income of the reserves backing USD Coin (USDC), the second-largest dollar-backed stablecoin.

Finally, in a move to reassure shareholders and strengthen investor confidence, Coinbase announced a $1 billion share buyback as part of its quarterly earnings report.

Share buyback is a strategy to reduce the number of shares circulating in the market. Thus, increase the value of the company’s shares and returning value to shareholders.

In summary, Coinbase’s third-quarter performance reveals the ongoing challenges the company faces in a stagnant cryptocurrency market. Coinbase stock (ticker:COIN) currently has a market cap of 52.61 billion.