3 Numbers to Look For When Coinbase Reports Q4 Results
Although the cryptocurrency market is up around 25% in the past 2.5 weeks (as of February 9), it is still down around 31% since November 9. Such is the extremely volatile nature of this nascent asset class.
Coinbase (NASDAQ: CURRENCY)the largest cryptocurrency brokerage and exchange in the United States, has seen its stock price fluctuate in line with the broader development cryptocurrency Marlet. Since most of the company’s revenue comes from unpredictable transaction fees, Coinbase’s success today largely depends on how crypto prices move over a period of time.
The company is expected to release its fourth quarter 2021 financial results on February 24. Here are three numbers investors should pay close attention to.
Users transacting monthly
As of September 30, Coinbase had 73 million verified users, of which 7.4 million were monthly transacting users (MTU). These were retail users who had used one or more products on the platform in the previous 28-day period. They are crucial to the business as they are Coinbase’s most active customers. In Q3 2021, 82.8% of overall sales came from retail transaction fees.
While MTUs fell sequentially from Q2 to Q3, management mentioned that because October started strong for the crypto market, Coinbase expects to have more MTU in Q4, compared to Q3. When crypto prices rise and volatility is high, users tend to trade more, which benefits Coinbase.
But as we have seen, the crypto market crashed in the last two months of 2021. The price drop could cause clients to close their crypto positions, simultaneously discouraging new users from signing up. This situation does not bode well for Coinbase.
Therefore, I wouldn’t be surprised if Q4 MTUs were lower than the 7.4 million recorded in Q3.
Growth in revenues from subscriptions and services
The most important factor keeping investors away from Coinbase, and likely why the stock currently trades for a cheap valuation of 19 times the earnings of the last 12 months, that’s how dependent the company is on trading revenue. It accounted for 94% of total sales in the first nine months of 2021. Trading revenue is very difficult to predict from quarter to quarter as it is correlated to crypto market prices and volatility.
Management is aware of this; that’s why the current focus is on increasing revenue from Coinbase’s subscriptions and services. Blockchain rewards and custody fees make up the bulk of this segment. Initiatives such as Coinbase Cloud, a tool for developers to create blockchain projects, and Coinbase NFT, a marketplace for non-fungible tokenscould also help.
Although only 11.8% of net revenue came from subscriptions and services in the third quarter, the segment grew 1,244% year-over-year, compared to a 295% increase in transaction revenue. If the same trend continued in the fourth quarter, that’s a fantastic sign.
As cryptocurrencies move from the investment phase to the utility phase, expect Coinbase’s reliance on transaction revenue to decline, while its reliance on subscription and service revenue will increase. This is what shareholders should want, as it adds much-needed stability and predictability to the business.
Number of assets on the platform
As one of the oldest crypto exchanges in the United States, Coinbase has earned a reputation for ease of use and security. Moreover, having a first-mover advantage means that it has more crypto assets on its platform than its domestic competitors.
During the third quarter, Coinbase added 30 new assets to trade and 19 new assets to hold on its platform, bringing the total to 103 and 158, respectively. Additionally, the company now has integrations in place with fiat currencies in over 90 countries.
Not only does Coinbase offer a wide range of digital assets, but it strives to reduce friction when connecting the traditional financial ecosystem to the crypto economy. From the user’s point of view, it is extremely attractive. And for Coinbase, that means less reliance on Bitcoin and Ethereum.
Although Coinbase’s process for bringing new digital assets to its platform may take longer than its competitors, it ensures that the tokens meet the company’s rigorous legal, regulatory and compliance standards. As the crypto economy continues to grow with the introduction of new cryptocurrencies, expect the number of assets offered by Coinbase to increase.
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