Coinbase Earnings Makes For A Dramatic “State of the Union”



COIN’s results vs. guidance highlight challenges - and broadening base of the New Digital World

Who gains from cryptocurrency volatility? Coinbase (NASDAQ:COIN), which continues to generate exchange fees regardless of whether customers trade cryptocurrency up or down. Nonetheless, Coinbase gave poor forward projections in its quarterly/2021 report last night, in addition to record earnings and growth.

So, are crypto traders and investors becoming exhausted? Let's take a look at Coinbase's "State of the Union" report from yesterday and see what we can find.

Coinbase's message yesterday – to which COIN stock appears to be primarily reacting – was essentially: We can't realistically anticipate this quarter to match up to the eye-popping increase we just posted for Q4.

Despite – or perhaps because of – the crypto crisis in the middle of the quarter, Coinbase reported Q4 revenues, users, trading volume, and earnings per share (EPS) that were several multiples of the year-ago quarter. Furthermore, there was a good sequential gain compared to Q3 2021. And by "nice," I mean "double," or something close!

Because Transactions account for 92 percent of Coinbase's revenue, the business focuses on that in its Future Outlook. "The cryptocurrency market capitalisation has dropped by more than 20%. The volatility of crypto assets has decreased by about 10%... As a result, we anticipate that retail MTU and overall Trading Volume will be lower in Q1 2022 compared to Q4 2021."

Coinbase expects its average transaction revenue per user (ATRPU) from retail traders to return to "pre-2021 levels" in 2022 overall. So, instead of $64 per user in 2021, Coinbase would see $45 this year, as shown in the graphic below.


As Coinbase points out, 2022 will offer its own set of obstacles, including "global macroeconomic headwinds, rising interest rates, inflation, and, more recently, geopolitical upheaval" as a result of Russia's terrible invasion of Ukraine and China's assault against Taiwan.

So, if 2022 turns out to be like 2019 – when many consumers remained out of the crypto markets entirely - the above chart predicts that revenue traded on Coinbase might nearly halve (to $34 ATRPU).

As we can see below, there is still WAY more crypto trading going on in the world than in 2019, but it remains to be seen if this state of affairs can keep up if the crisis continues.

crypto trading

Let's not forget that there's a lot more to this New Digital World than people trading Bitcoin (BTC-USD) and Ether (ETH-USD) on Coinbase. It's critical not to lose sight of the forest for the trees.

Even the "disappointing" status of the crypto markets contains lots of good news if you delve deeper.

More People are Buying Altcoins

One of Coinbase's claims to fame – or, at the very least, one of its goals – is that it is a legitimately, legally operating exchange in the United States...where you can still purchase just about any cryptocurrency you want. And this is how Coinbase explains its record-breaking trading volume in Q4: "significant consumer interest in a broader range of crypto assets."

It's definitely reflected in the transactions. This was essentially the "Bitcoin and Ethereum Show" in 2020. The script was switched in 2021. Instead of BTC and ETH accounting for the majority of trades... Other cryptocurrencies now account for more than two-thirds of total trading volume and revenue!


As I've stated in nearly every issue of The New Digital World, there are other intriguing crypto projects out there aiming to improve on the initial promises of Bitcoin and Ethereum - and reward investors in the process. It's encouraging to see the rest of the globe catching on.

More People are Staking to Earn Yields

Most firms will attempt to diversify at some point. Coinbase is no exception: it's increasing its technology and development budget to $5 billion by 2022, after releasing a slew of new products to diversify its revenue streams beyond Transactions - and it's working.

While its Subscription and Services business is still small, it is growing quickly, increasing 47 percent in only one quarter to $213.4 million. Almost half of that came from Blockchain Rewards revenue from clients staking their cryptocurrency. Coinbase earned $102.7 million in income from this action, which is significantly more than in previous quarters:


WAY More People Are Buying NFTs

Despite the fact that the price of cryptos has plummeted, the use of them to purchase NFTs has skyrocketed.

According to Coinbase's "State of the Union," "NFT sales reached approximately $20 billion in 2021, compared to less than $100 million in 2020, according to CryptoSlam"... And the NFT market showed no signs of slowing down in January. Adoption of crypto wallets has continued along the way:


Furthermore, monies invested in decentralized finance (DeFi) applications have barely moved from their all-time high of around $250 billion!

Even if we ignore Coinbase's "disappointing" user forecasts for 2022, the business expects 5-15 million retail traders on this exchange alone each month! We're talking about at least doubling the number of cryptocurrency traders from 2020.

The future seems bright for COIN stock, at least, according to Wall Street. To begin with, Coinbase recently acquired a Goldman Sachs partner; what better endorsement could there be? Analysts' price targets have also remained pretty steady. At the current consensus price of $337, that equates to an 88 percent gain for COIN shares:


If you're suspicious about COIN's +88 percent potential from here, recall that it was at that price in November, and analysts have continued to think it's fair. Overall, the current state of things at Coinbase highlights the difficult environment – but also the expanding base of the New Digital World.


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