Coinbase Global, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022. Coinbase operates a global crypto-asset trading, custody, and financial-infrastructure business. Management said Q2 results reflected lower crypto prices and trading activity amid macroeconomic and crypto-credit pressures.
Financial performance and position
| Metric | Q2 2022 | Comparison |
|---|---|---|
| Total revenue | $808 million | Down 64% year over year |
| Net revenue | $803 million | Down 61% year over year |
| Transaction revenue | $655 million | Down 66% year over year |
| Subscription and services revenue | $147 million | Up 44% year over year |
| Operating expenses | $1.853 billion | Up 37% year over year |
| Operating loss | $1.044 billion | Compared with $875 million operating income |
| Net loss | $1.094 billion; $4.95 basic loss per share | Compared with $1.606 billion net income |
| Adjusted EBITDA | $(151) million | Compared with $1.150 billion; non-GAAP measure |
For the six months ended June 30, revenue was $1.975 billion, down 51% year over year; net loss was $1.523 billion, versus net income of $2.378 billion. Adjusted EBITDA was $(131) million, versus $2.267 billion. Q2 operating and net margins were approximately (129)% and (135)%, respectively.
Transaction volume was $217 billion in Q2, down 53% year over year; retail volume fell 68% and institutional volume 46%. Monthly transacting users were 9.0 million, versus 8.8 million, while assets on platform were $96 billion, down 47%.
Six-month operating cash flow was $(3.864) billion, investing cash flow $(619) million, and financing cash flow $(186) million. The operating cash outflow included a $3.421 billion decrease in customer custodial cash liabilities, which management says materially affects period-to-period cash flow. Cash and cash equivalents were $5.682 billion at quarter-end, down from $7.123 billion at December 31, 2021; USDC holdings were $362 million and are not classified as cash.
Long-term debt had a $3.389 billion carrying value and $3.438 billion principal amount. Stockholders’ equity was $5.813 billion. Customer crypto assets and matching liabilities of $88.454 billion were recorded following retrospective adoption of SEC Staff Accounting Bulletin 121; this accounting change substantially increased reported balance-sheet totals and limits direct comparison with periods before adoption.
Material changes and unusual items
- Crypto-market contraction drove lower trading volume and transaction revenue. Subscription and services revenue grew, notably from blockchain rewards and interest income, but did not offset the transaction decline.
- Q2 included $377 million of net impairment charges on crypto assets still held at June 30; six-month net charges were $587 million. Coinbase also recorded $69 million of strategic-investment impairment in the first half.
- Other operating expenses included $42 million of restructuring charges. Coinbase announced and completed a workforce reduction of approximately 18%, or about 1,100 employees, in June.
- Other expense, net was $173 million in Q2, including foreign-exchange losses and investment-related items. Technology and development and general and administrative expenses rose sharply year over year; Q2 stock-based compensation was $391 million.
- Two 2022 acquisitions, Unbound Security and FairXchange, together involved approximately $533 million of consideration. Goodwill rose to $1.074 billion from $626 million at year-end.
Outlook, commentary, and risks
Management provided no clear numerical revenue or earnings guidance in the filing. It said it did not believe the market conditions were permanent, maintained a long-term focus, and prioritized the Retail App, Coinbase Prime, staking, Coinbase Cloud developer products, and Web3. Management stated existing cash and cash equivalents should meet short- and long-term requirements, while noting that future needs depend on market, customer, product, and economic conditions. Cash payments for the restructuring were expected to be substantially complete by Q3 2022.
Credit ratings were downgraded by Moody’s in June, with the ratings under review for further downgrade; S&P revised its outlook to negative. The filing identifies substantial risks from crypto-price and volume volatility, competition, cybersecurity and custody, evolving regulation, and the classification of crypto assets as securities. The company disclosed an ongoing NYDFS compliance investigation, SEC subpoenas and information requests concerning customer programs and products, and litigation including securities and derivative actions. Outcomes and potential financial effects were uncertain and could not be estimated for several matters.
Important facts for investors to verify
- Whether trading activity and transaction revenue stabilize, and whether subscription growth can meaningfully diversify revenue.
- How crypto-asset prices, further impairments, foreign-exchange movements, and strategic-investment valuations affect results and liquidity.
- Cash generation excluding movements in customer custodial balances, and the company’s ability to fund operations while servicing approximately $3.44 billion of debt principal.
- Developments in the NYDFS investigation, SEC inquiries and asset-classification issues, and the disclosed litigation; the filing provides no clear estimate of potential losses for key matters.
- The effect of the workforce reduction and spending controls on expenses, product execution, customer support, and future profitability.