Coinbase Global, Inc. — Q3 2023 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2023, compared primarily with the same periods in 2022. Coinbase operates a global crypto trading, custody, and financial-infrastructure platform. Management described Q3 as a strong quarter of execution despite multi-year-low crypto volatility.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Year-to-date 2023 | Year-to-date 2022 |
|---|---|---|---|---|
| Total revenue | $674.1M | $590.3M | $2,154.6M | $2,565.1M |
| Net revenue | $623.0M | $576.4M | $2,021.9M | $2,543.9M |
| Operating loss | $(79.8)M | $(556.5)M | $(277.3)M | $(2,155.3)M |
| Net loss | $(2.3)M | $(544.6)M | $(178.6)M | $(2,067.9)M |
| Adjusted EBITDA (non-GAAP) | $180.9M | $(115.9)M | $658.5M | $(247.3)M |
- Q3 total revenue increased 14% year over year; net revenue increased 8%. Transaction revenue fell 21% to $288.6M, while subscription and services revenue rose 59% to $334.4M. Other revenue was $51.1M.
- Q3 operating margin was approximately negative 11.8%; net margin was approximately negative 0.3%. Nine-month operating and net margins were approximately negative 12.9% and negative 8.3%, respectively. Q3 Adjusted EBITDA was about 26.8% of total revenue; this is a non-GAAP measure.
- Q3 transaction revenue was pressured by a 52% decline in trading volume to $76B. Consumer trading volume fell 58%; institutional volume fell 51%. Consumer transaction revenue declined 21%, partly offset by higher blended consumer fees.
- Subscription and services growth was led by stablecoin revenue, up 124% to $172.4M in Q3, and higher interest income. Higher average interest rates supported stablecoin, customer-cash, and corporate interest revenue.
- Operating expenses declined 34% year over year in Q3, mainly from lower technology and development and general and administrative costs. The nine-month comparison also benefited from substantially lower crypto-asset impairment than in 2022.
- Cash and cash equivalents were $5.10B at September 30, 2023, up from $4.43B at December 31, 2022. Coinbase also held $26.3M restricted cash and $400.8M USDC, which it considers a liquidity resource. Customer custodial cash and safeguarded crypto are customer-related balances, not equivalent to unrestricted corporate liquidity.
- Long-term debt had a $3.08B carrying value and approximately $3.11B principal outstanding. Nine-month operating cash flow was $928.1M, versus cash used of $840.0M a year earlier; investing used $85.1M and financing used $1.73B. The filing does not provide quarterly cash flow figures in the presented statements.
- Total assets were $127.31B, including $114.29B of safeguarded customer crypto assets, matched by an equal safeguarding liability. Stockholders’ equity was $5.92B.
Material changes and unusual items
- For the first nine months, total revenue declined 16% year over year, chiefly because transaction revenue fell 51%; subscription and services revenue more than doubled, to $1.03B.
- Q3 other income included an approximately $49.9M gain related to exchanging Coinbase’s Centre joint-venture interest for an equity interest in Circle, and an $81.6M gain on repurchasing senior notes. The nine-month period included $99.4M of net gains on debt extinguishment.
- Coinbase repurchased $64.5M principal of 2026 convertible notes for $45.5M and $262.5M principal of 2031 notes for $177.2M. Remaining principal across the disclosed notes was about $3.1B.
- The January 2023 restructuring affected approximately 950 employees, about 21% of year-end 2022 headcount. Nine-month restructuring expense was $142.6M, including accelerated stock compensation; associated cash payments were completed in Q3.
- Monthly Transacting Users averaged 6.7M in Q3, down 21% year over year. Management attributed the decline primarily to fewer consumers actively trading.
Outlook, risks, and contingencies
- The filing provides no specific numerical revenue or earnings guidance. Management said it did not expect material sequential expense reductions to continue in the remainder of 2023 because major restructuring and cost-optimization efforts were largely complete; it expected near-term expenses to remain generally below prior-year levels.
- Management said existing cash and cash equivalents should meet short- and long-term cash requirements, while noting future liquidity depends on market conditions, customer demand, product growth, and access to financing. Credit ratings had been downgraded in January 2023 and remained at those levels at quarter-end.
- The SEC’s June 2023 lawsuit alleges unregistered exchange, broker, and clearing-agency activity, and unregistered securities offerings through staking. Coinbase disputes the claims and is defending the case; the filing says an adverse resolution could materially affect the business and financial statements. Related state staking actions also create risk; agreements in several states restricted new staking funds pending adjudication.
- Coinbase paid a $50M NYDFS penalty in January 2023 and agreed to invest a further $50M in compliance by the end of 2024. Other disclosed securities, shareholder, and acquisition-related proceedings remain uncertain; the company generally could not estimate potential impacts.
- Key risks include crypto prices and trading activity, dependence on Bitcoin, Ethereum, and USDC-related revenue, interest-rate sensitivity, evolving regulation and litigation, cybersecurity and custody risks, banking and third-party-provider relationships, and competition. Coinbase also disclosed that customer crypto is held one-to-one and is not rehypothecated unless required by law or expressly agreed with an institutional customer.
Important facts for investors to verify
- Whether the growth in subscription and services revenue can offset weak transaction revenue as trading volumes and interest rates change.
- How much of Q3’s near-break-even GAAP net result and positive Adjusted EBITDA reflects recurring operations versus debt-repurchase and investment gains, tax effects, and non-GAAP exclusions.
- The unrestricted corporate liquidity available after distinguishing it from customer custodial balances, USDC, and other restricted or less-liquid assets.
- Developments in the SEC and state staking cases, related product restrictions, and the remaining compliance investment required under the NYDFS order.
- The effect of note repurchases, continuing debt service, and any future financing needs on cash and capital flexibility.