Yesterday, Coinbase (COIN) reported Q1 earnings for 2022.
Today, the stock is down more than 25%.
Shares of the company are now trading at less than $55, representing a loss of more than 85% since the company went public in August, 2021. Although the company explicitly warned in Q4 that users and trading volume would decline in Q1, investors still punished them this morning.
Here are the high level numbers:
- Revenue of $1.17 billion
- Expenses of $1.7 billion
- Net loss of $430 million
- Monthly transaction users of 9.2 million, a drop from 11.4 in Q4
- Adjusted EBITDA of $20 million, a drop from $1.2 billion in Q4
Let’s just get this out of the way up front: analyst expectations for most companies are laughable and for crypto companies they are even more so.
For Q1, the Street had a target of $1.48 billion in revenue for Coinbase. So when the company reported a revenue number of $1.17 billion, investor’s natural reaction was a huge miss on revenue.
Let us not forget though that in Q4 2021, The Street expected Coinbase to report $1.94 billion, when in reality it reported $2.5 billion, a more than $500 million beat.
As SBF rightfully asked: “What if earnings are roughly in line with the public marketdata they publish in real time? Will COIN still move? Did analysts bother looking at the marketdata?”
Now that we are done ripping on analysts, it is worth noting that Coinbase posted a more than $400 million loss in Q1. On face value, the loss is concerning, but on the earnings call Coinbase CFO Alesia Haas was quick to point out:
“We are highly confident that we could choose profitability over reinvesting in the business. However, we chose investment. As we shared with you last quarter, we are choosing to make 2022 an investment year… I do think it’s really important that investors understand that we do have the ability to have the profitability, but we’ve consciously made the chance to focus on growth and diversification.”
Although the company is insisting that they were planning on a large year of investing into the company, the slowdown in the crypto markets that we have seen over the past year definitely didn’t help at all to offset these investments.
On the earnings call, Pete Christiansen from Citi, asked a question that is on a lot of investor’s minds right now which is whether the company would consider buying back stock at these depressed valuations.
Again, Alesia Haas responded stating that the company would rather use the cash on the balance sheet for growth (such as international expansion) rather than for dividends or buybacks.
Interestingly on the note of share buybacks though, today Galaxy Digital (GLXY) announced that the company’s board has approved a bid to purchase 10% of the float as they believe shares are undervalued. The company’s stock is down 80% off of it’s highs.
M&A and Ventures
Longtime readers of CoinSnacks know that we have been begging for an update on the Coinbase’s venture portfolio. Unfortunately, we will still be waiting. With that being said, Coinbase made a point in mentioning that they are looking intently at M&A targets, especially among their existing venture portfolio.
Right now, Coinbase is trading at ~$12 billion market cap. To put that in perspective to other exchanges, that is less than FTX ($40 billion), Blockchain ($14 billion), and not far off from Kraken ($10 billion), and Gemini ($7 billion). And before you say those companies simply haven’t repriced yet to match the macro environment, just yesterday we found out that Kucoin raised at a $10 billion valuation.
On top of that, Coinbase currently has $6-7 billion in cash or equivalents on hand, meaning that the company is only trading for around 2x cash.
With a potentially multi-billion dollar ventures portfolio, its getting more and more difficult for us to rationalize this valuation… even with the $400+ million quarterly loss.
On the earnings call, Brian Armstrong made reference to this point in stating that either the company’s public valuation will have to rise, private valuations will have to drop, or both. If this happens, Coinbase is ready to pounce on acquisition targets.
Overall, we’d like to reiterate a point we made two weeks ago:
“Overall, the stock could have much more room to slide, but at some point, dependent on the macro market, crypto prices, and the company’s moves, the stock may just enter into a good buying zone.”
Fortunes are made coming out of bear markets and right now Coinbase has the cash to weather a prolonged storm.