Coinbase Q1 Financial Report Analysis: Net Profit Big Dump by 94%, Acquisition of Deribit Tackles Derivation

Revenue performance fell short of expectations, with net profit plummeting 94%, trading volume down 10%, retail trading revenue down 19% sequentially, and institutional trading revenue down 30% sequentially. (Synopsis: Just bought Deribt yesterday" Coinbase launched 24/7 Bitcoin + Ethereum futures trading in the United States, perpetual contracts are also on the way) (Background supplement: sovereign funds bought bitcoin in April, Coinbase director: three major factors fund inflow into BTC, correlation with US stocks is weakening) US cryptocurrency exchange Coinbase announced its first-quarter (Q1) earnings report on May 8, local time. Revenue and net profit fell short of expectations as market trading cooled from the post-election rally in the previous quarter. Adjusted net income was $527 million as of March 31. Earnings per share were $0.24, below consensus expectations of $1.93. Total revenue was $2.0 billion, slightly below expectations of $2.12 billion and down from $2.3 billion in the fourth quarter of 2024. Q1 trading revenue fell 19% to $1.2 billion, and trading volume fell 10%. Or as a result of this news, Coinbase (COIN) shares fell 2.67% in after-hours trading, compared with a 5% rise in the previous session. COIN has fallen 16.83% since the beginning of the year. Income Q1 Average volatility of cryptocurrency assets increased, with BTC hitting an all-time high in January. However, due to tariff policies and macroeconomic uncertainty, cryptocurrency prices fell in tandem with the overall market decline. The total cryptocurrency market capitalization at the end of the first quarter decreased by 19% to $2.7 trillion compared to the end of the fourth quarter. Against this backdrop, Coinbase revenue was $2 billion, down 10% sequentially; Net income plunged 94% sequentially to $66 million, primarily due to a $597 million pre-tax loss on the crypto asset portfolio, the vast majority of which was an unrealized loss. Adjusted net income was $527 million and adjusted EBITDA was $930 million. Trading revenue Coinbase reports that trading is its main source of revenue, accounting for more than 60% of its total revenue. Q1 trading revenue was $1.3 billion, down 19% sequentially. Coinbase's total spot volume fell 10% sequentially to $393.1 billion, but outperformed the global spot market, which saw a 13% sequential decline. On the derivatives side, Coinbase traded $803.6 billion and continued to grow in market share. Among them, Q1 retail trading volume was $78.1 billion, down 17% sequentially. Retail trading revenue of $1.1 billion decreased 19% sequentially, broadly in line with the decline in trading volume. In institutional trading, institutional trading volume was $315 billion, down 9% sequentially, and institutional trading revenue was $99 million, down 30% sequentially. In addition to the macro backdrop, the second factor in the sequential decline in revenue was the derivatives business. According to the earnings report, Coinbase is investing in trading rebates and incentives to build liquidity and attract customers. These rebates and rewards have been deducted from institutional trading income. Other trading revenue Q1 Other trading revenue was $68 million, flat sequentially. Base's number of transactions increased 16% sequentially, but average revenue per transaction decreased by 21%. Subscription and Services Revenue Subscription and service revenue of $698 million in Q1, up 9% sequentially, was driven by growth in stablecoin and Coinbase One revenue, with USDC market cap reaching an all-time high of more than $60 billion. However, this increase was partially offset by a 9% sequential decline in blockchain reward revenue. The decline was mainly due to a sequential decline in average asset prices, particularly ETH and SOL. Q1 stablecoin revenue increased 32% sequentially to $298 million. Coinbase said this increase was partially offset by lower average interest rates. Average USDC holdings in Coinbase products increased 49% sequentially to $12.3 billion. Other subscriptions and services revenue was $141 million, up 5% sequentially. Coinbase One subscribers hit an all-time high in Q1, and the Coinbase One Premium service ($300 per month) also grew. Expenses Total operating expenses in Q1 were $1.3 billion, up 7% sequentially, or $91 million, primarily due to higher volatility expenses due to market activity at the start of the quarter and loss of crypto assets held for operations. Technical & Development, General & Administrative, and Sales & Marketing expenses combined increased $40 million, or 4% sequentially, primarily due to higher marketing spend, including performance marketing and USDC incentives, and higher customer support costs. At the end of the quarter, Coinbase full-time employees grew 5% sequentially to 3,959. Transaction fees of $303 million, or 15% of net income, decreased 4% sequentially. The sequential decrease was primarily due to lower customer trading activity and lower blockchain reward fees related to lower average asset prices. Technology and development expenses decreased 4% sequentially to $355 million. The decrease was mainly due to a decrease in personnel-related expenses despite an increase in the total number of employees. General and administrative expenses increased 9% sequentially to $394 million. The increase was primarily driven by increased customer support and personnel-related costs. Sales and marketing expenses were $247 million, up 10% sequentially. Looking ahead to April, Coinbase's total trading revenue is around $240 million. Coinbase expects Q2 subscription and services revenue to be between $600 million and $680 million, as it expects the sequential increase in stablecoin revenue to be offset by a decline in blockchain reward revenue due to lower asset prices; Transaction fees will be around 15% of net income; Technology and development, as well as general and administrative expenses, will range from $700 million to $750 million. It is worth mentioning that Coinbase has made efforts in the derivatives market, announcing the acquisition of Deribit, the world's largest bitcoin and ether options exchange, for $2.9 billion, including $700 million in cash and 11 million shares of Coinbase common stock, subject to customary purchase price adjustments. The transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to close by the end of the year. Last year, Deribit had more than $30 billion in open interest and more than $1 trillion in trading volume. Coinbase CFO Alesia Haas said on the earnings call, "Derebit is expected to immediately improve our profitability and increase the diversity and sustainability of our trading revenue." In addition, Coinbase CEO Brian Armstrong said on an investor call that this quarter, Coinbase will launch a pilot program that will allow businesses to use stablecoins for payments and spending. Notable Morpho Protocol: Relating to...