Coinbase Q1 Crushes It, But Fickle Crypto Winds Linger

Coinbase enjoyed stellar Q1 results as Bitcoin shone, but worries remain over the company’s sustainability when markets eventually cool.

Robot is racing with power in the struggle of the wind.
Created by Kornelija Poderskytė from DailyCoin
  • Coinbase reported significantly better than expected Q1 results.
  • The company acknowledged the importance of revenue diversification.
  • Next quarter results appear on track.

With inflation remaining stubbornly high and interest rates unchanged since July 2023, modest earnings growth was the general expectation for earnings season. However, Coinbase bucked that trend spectacularly, releasing Q1 2024 numbers that blew Wall Street projections out of the water. 

The leading US crypto exchange earned $1,638 million in total revenue, trouncing estimates of $1,321 million and soaring 72% higher than the previous quarter. However, a period of recent crypto instability, in which Bitcoin sunk to a 9-week low of $56,600, served as a stark reminder of Coinbase’s precarious business model and its ability to deliver consistent growth and shareholder returns over the long term.

Coinbase on a Roll

In acknowledgment of its precarious business model, the Risk Factors Summary section of Coinbase’s current 10-Q report stated, “Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform.” The filing warned that a decline in either metric may negatively impact operations, including the company’s stock price. 

Sponsored

Nonetheless, Coinbase has taken strides to diversify its revenue streams beyond the core exchange trading fees. This quarter, its “Other subscription and services revenue” soared 122% year-over-year to $63,686 million, up from $28,682 million in Q1 2023. Subscriptions offer users benefits like zero fees, higher staking rewards, priority support, and advanced analytics tools.

Custodial fee revenue jumped 90% to $32,341 million, compared to $17,043 million a year prior. The increase is largely attributed to Coinbase providing custody services for 90% of the Bitcoin ETFs that launched in the US in Q1.

Subscription and services revenue year-on-year comparison, per Coinbase Q-10 filing.
Subscription and services revenue figures per the latest Q-10 report

However, concerns continue to swirl around Coinbase’s ability to limit its exposure when the inevitable bear market arrives. 

Diversification Strategy

Coinbase recognized that diversifying and growing its subscription and services revenue is key to mitigating its exposure to crypto price volatility. 

Sponsored

Owen Lau, analyst at Oppenheimer & Co., agreed that adopting a diversification strategy “can provide some downside protection” when cryptocurrency prices and volumes turn bearish.

However, investor concerns continue to swirl about the company’s ability to build out these income streams further in the future.

Q2 Appears on Track

The shareholder letter painted an optimistic tone for Q2, stating that transaction revenue in April came in at $300 million, which is around on track to match Q1’s $1,077 million transaction revenue in Q1. However, Coinbase cautioned against projecting future quarterly results based on one month’s actual.

The company provided a similarly positive forecast for its subscription and services revenue stream in Q2, estimating it will land between $525-$600 million, subject to crypto prices remaining at levels seen this year. This would approximately match or exceed Q1’s $511 million figure.

On the Flipside

  • Shareholders celebrated the Q1 results as EPS came in at $4.40, smashing expectations of $1.15, and up 323% on Q4 2023.
  • Coinbase is subject to an SEC complaint which may impact the company‘s financial position going forward.
  • Before Q4 2023, Coinbase suffered seven consecutive quarters of losses.

Why This Matters

Coinbase’s Q1 results underscore the paradox of being buoyed by Bitcoin’s overperformance yet shackled by its volatility. While revenue diversification such as subscriptions may offer some downside protection, it’s noted that all such diversified streams are still crypto-related.

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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Samuel Wan

Samuel Wan is a finance professional turned crypto journalist, known for his insightful reporting on market trends, regulatory changes, and technological developments within the digital asset industry. His ability to simplify complex concepts and report the facts has made him a trusted source in the crypto community. Beyond his writing, Samuel is an active mountain biker and gamer.