Coinbase Global, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The financial statements are unaudited and compare with Q1 2023. Coinbase operates a crypto platform serving consumers, institutions and developers.
Financial performance and liquidity
- Revenue: Total revenue was $1.638 billion, up 112% year over year. Net revenue was $1.588 billion. Transaction revenue increased 187% to $1.077 billion; subscription and services revenue rose 41% to $511 million. Other revenue was $49.9 million.
- Profit: Operating income was $760 million, versus an operating loss of $124 million. Net income was $1.176 billion, versus a $78.9 million loss; diluted EPS was $4.40, versus a loss of $0.34 per share. Operating margin was approximately 46% and net margin approximately 72%, with net income materially boosted by crypto-asset fair-value gains.
- Cash flow: Operating cash flow was $411 million, down from $463 million. Investing cash outflow was $126 million and financing cash inflow was $1.928 billion, including proceeds from the 2030 convertible notes. Cash, cash equivalents and restricted cash increased by $2.214 billion to $11.748 billion; this total includes customer custodial cash. The filing does not provide a free-cash-flow measure.
- Liquidity and debt: Corporate cash and cash equivalents were $6.711 billion; Coinbase also held $860.7 million of USDC, which it treats as a liquidity resource. Long-term debt had a $4.225 billion carrying value and approximately $4.275 billion principal outstanding. Total stockholders’ equity was $8.071 billion.
- Operating metrics: Trading volume rose 115% to $312 billion, while monthly transacting users fell 5% to 8.0 million. Adjusted EBITDA, a non-GAAP measure, was $1.014 billion versus $287 million.
Material changes versus Q1 2023
- Higher crypto prices, volatility and Coinbase market share supported the increase in trading volume and transaction revenue. Consumer transaction revenue rose 184%; institutional revenue rose 283%, including the effect of higher blended fees after certain market-maker discounts declined.
- Subscription and services growth reflected higher blockchain rewards, Prime Financing fees, custody revenue and Coinbase One revenue. Stablecoin revenue was nearly flat at $197 million, as lower off-platform USDC capitalization was offset by higher interest rates and a new issuer arrangement.
- Operating expenses declined 2% to $877 million. Higher transaction, sales and marketing, and general and administrative expenses were offset in part by the absence of 2023 restructuring charges and crypto impairment. Technology and development expense was essentially flat.
- Q1 2024 income included $650 million of net gains on crypto assets held for investment and $86 million of gains on crypto assets held for operations. These gains were not present in Q1 2023 and make the year-over-year profit comparison less indicative of underlying operating trends.
- Effective January 1, 2024, Coinbase adopted fair-value accounting for qualifying crypto assets under ASU 2023-08. Adoption increased opening retained earnings by $561 million net of tax; this was an accounting adjustment, not cash generated during the quarter.
Outlook, commentary and risks
- Management identified revenue growth through transaction and stablecoin expansion, international growth, greater USDC utility, Base and developer support, and work toward regulatory clarity as priorities for the remainder of 2024.
- Management aims for positive Adjusted EBITDA for the remainder of 2024 and says it will adjust expenses to market conditions and revenue opportunities. For Q2, it expects technology and development and general and administrative expenses to rise with trading-related support and infrastructure needs; sales and marketing is expected to rise significantly, mainly from USDC rewards and seasonal NBA sponsorship spending. This is outlook, not a guarantee.
- Results remain highly sensitive to crypto prices, trading activity and volatility, interest rates, USDC balances and usage, and revenue concentration in Bitcoin, Ethereum and USDC. MTUs declined despite stronger trading volume.
- The SEC’s lawsuit alleges unregistered exchange, broker and clearing-agency activity and unregistered securities offerings through staking. On March 27, 2024, the court denied Coinbase’s motion on most claims but dismissed the wallet-service broker claim; Coinbase sought an interlocutory appeal in April. State staking actions also remain pending, with certain states restricting new staking. Coinbase disputes the claims; an adverse outcome could materially affect the business, and the filing says potential impact cannot currently be estimated.
- Other notable exposures include evolving U.S. and international crypto regulation, litigation and investigations, cybersecurity and custody risks, dependence on banking and third-party providers, crypto-market concentration and volatility, and debt obligations. Coinbase reported no material change to liquidity resources from its 2023 Form 10-K other than the debt issuance, and said existing cash and USDC should meet cash requirements; ratings remained at previously downgraded levels.
Important facts for investors to verify
- How much reported profit and Adjusted EBITDA reflects recurring operating performance versus crypto fair-value gains, and how the new accounting standard affects future earnings volatility.
- Whether trading volume, MTUs, transaction revenue and subscription revenue—especially USDC-related revenue—remain resilient as crypto prices, interest rates and market activity change.
- Developments in the SEC and state staking cases, related product restrictions, and potential legal, regulatory or compliance costs.
- Q2 expense growth and progress toward management’s positive Adjusted EBITDA objective for the remainder of 2024.
- Use and availability of corporate liquidity, Prime Financing growth and collateral requirements, and the terms, dilution potential and servicing implications of the 2030 convertible notes.