Coinbase Global, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. Comparisons below are primarily year over year (Q1 2021). Coinbase operates a global crypto-asset trading, custody, and financial-services platform.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $1.166 billion | $1.801 billion | Down 35% |
| Net revenue | $1.165 billion | $1.597 billion | Down 27% |
| Transaction revenue | $1.013 billion | $1.541 billion | Down 34% |
| Subscription and services revenue | $151.9 million | $56.4 million | Up 169% |
| Operating expenses | $1.721 billion | $813.4 million | Up 112% |
| Operating income (loss) | $(554.5) million | $987.7 million | Turned to a loss |
| Net income (loss) | $(429.7) million | $771.5 million | Turned to a loss |
| Net loss per share, diluted | $(1.98) | $3.05 income | |
| Adjusted EBITDA | $19.7 million | $1.117 billion | Down 98% |
| Trading volume | $309 billion | $335 billion | Down 8% |
| Monthly transacting users (MTUs) | 9.2 million | 6.1 million | Up 51% |
| Assets on platform | $256 billion | $223 billion | Up 15% |
Margins and cost profile: Operating loss was approximately 48% of total revenue and net loss approximately 37%. The filing does not present a conventional gross-margin figure. Transaction expense was 23.8% of net revenue, versus 14.7% a year earlier. Technology and development, sales and marketing, and general and administrative expenses rose sharply, with significant contributions from hiring and stock-based compensation. Q1 stock-based compensation was $352 million.
Cash flow and liquidity: Operating cash flow was $(830.1) million, versus $3.412 billion provided in Q1 2021; the 2022 outflow included a $738.8 million reduction in custodial funds due to customers. Investing cash flow was $(691.6) million, including crypto-asset purchases and acquisitions; financing cash flow was $13.4 million. Cash, cash equivalents, and restricted cash totaled $6.143 billion at March 31, excluding $10.023 billion of customer custodial funds. Coinbase also held $179.9 million of USDC, which management treats as a liquidity resource. Management said existing cash and cash equivalents should cover requirements for at least the next 12 months.
Debt: Long-term debt had a $3.387 billion carrying value at quarter-end; aggregate principal was approximately $3.44 billion, consisting of $1.44 billion of 2026 convertible notes and $2.0 billion of senior notes due in 2028 and 2031. The company also reported $149.4 million of short-term borrowings in current liabilities and $485.6 million of crypto-asset borrowings. Q1 interest expense was $22.1 million.
Material changes and management commentary
- Management attributed weaker results to lower crypto prices and volatility and lower trading activity. Retail trading volume fell 38% year over year; institutional volume increased, contributing to total volume declining by a more modest 8%.
- Subscription and services revenue grew, particularly blockchain rewards and staking. It represented 13% of net revenue, but transaction revenue remained the primary revenue source. Bitcoin and Ethereum together represented 48% of Q1 transaction revenue.
- Operating expenses increased substantially as Coinbase expanded its teams and invested in products and infrastructure. The company hired more than 1,200 full-time employees during the quarter and said technology and development costs were expected to continue increasing as it scaled teams and launched products.
- Other operating expense included $228.0 million of gross crypto-asset impairment charges; $209.8 million related to assets still held at quarter-end. Management separately disclosed $141.7 million of impairment expense on its crypto-asset investment portfolio.
- Coinbase completed the Unbound Security and FairXchange acquisitions, with total consideration of approximately $533 million, primarily to add security technology and a U.S.-registered derivatives exchange.
- Management said it remained focused on long-term investment during softer markets. Coinbase NFT entered beta in April 2022, after quarter-end; the company also expanded staking support and reported growing Coinbase Wallet adoption.
Outlook, risks, and contingencies
- The filing provides no specific numeric revenue, earnings, or trading-volume guidance. Management emphasized that results are highly sensitive to crypto prices, volatility, and trading activity, and said operating expenses were expected to rise as the company continued hiring and investing.
- Management identified substantial market risk from crypto-price and volume declines, competition, regulatory uncertainty, cybersecurity and custody risks, service disruptions, and reliance on banking and other third-party providers. It warned that these factors can cause significant quarterly fluctuations and make forecasting difficult.
- Regulatory and legal matters include an NYDFS investigation of Coinbase’s compliance program and SEC investigative subpoenas concerning customer programs, operations, and planned products, including stablecoin and yield-generating products. Coinbase said the outcomes and potential financial impacts could not be estimated. Several securities, consumer, and shareholder lawsuits also remained unresolved.
- SEC Staff Accounting Bulletin 121, issued March 31, 2022, could require recognition of safeguarding assets and corresponding liabilities for customer crypto holdings. Coinbase was evaluating the impact; it disclosed approximately $246 billion of customer crypto assets and warned adoption amounts could differ materially as market prices and balances change.
- Coinbase reported that eligible liquid assets exceeded customer custodial funds due to customers at quarter-end. However, those customer assets are distinct from corporate liquidity, and the company cautioned that customer crypto assets held in custody could be subject to bankruptcy proceedings if the company became bankrupt.
- Controls and procedures were assessed as effective at a reasonable assurance level at March 31, 2022. This does not eliminate inherent limitations in internal controls.
Most important facts for investors to verify
- How trading activity, crypto prices, and volatility affect transaction revenue and profitability, and whether subscription revenue can become a larger, less transaction-dependent contributor.
- The cash-flow picture excluding movements in customer custodial funds, and the distinction between corporate cash, customer funds, and crypto holdings that may not be readily available as liquidity.
- The eventual balance-sheet and disclosure effects of SAB 121, including the reported treatment of customer assets and corresponding safeguarding obligations.
- The scale and persistence of operating expenses, stock-based compensation, crypto impairments, and acquisition-related costs as the company pursues growth.
- Developments in the NYDFS investigation, SEC inquiries, and pending litigation, including any resulting restrictions, costs, or required changes to products.
- Debt-service capacity and refinancing flexibility if market conditions remain weak, alongside the company’s stated expectation that current cash and cash equivalents cover at least 12 months of requirements.