Research Summary
The report provides an analysis of Coinbase’s Q4 2023 earnings, highlighting its return to profitability, increased trading volumes, and potential for inclusion in the S&P 500. It also discusses the company’s aggressive cost-cutting strategy, institutional relationships, and regulatory battles.
Key Takeaways
Return to Profitability
- Profitable Quarter: Coinbase reported its first profitable quarter in two years with earnings per share of $1.04, making its full year (2023) results profitable by $94.8 million. This is a significant turnaround from the $2.62 billion loss in 2022.
- Cost-Cutting Strategy: The return to profitability was enabled by an aggressive cost-cutting strategy, which achieved a 45% year-over-year reduction in total operating expenses.
Improved Financial Position
- Debt Reduction: Coinbase reduced its debt by $413 million, approximately 12% of its total debt.
- Increased Reserves: The company’s USD reserves increased by $217 million year-over-year, reaching $5.7 billion.
- Crypto Assets: Coinbase holds $1 billion of crypto assets at fair market value.
Growth in Trading Volumes
- Retail Market: Consumer transaction revenue was $493 million in Q4, up 79% quarter-on-quarter, generated by $29 billion in trading volume, up 164% quarter-on-quarter. This represents a gain in market share, outpacing the US spot market volume growth of 90%.
- Institutional Market: Institutional transaction revenue was $37 million, up 161% quarter-on-quarter. Total assets under custody at year end were $101 billion.
Potential S&P 500 Listing
- Eligibility: Coinbase currently meets some of the requirements for inclusion in the S&P 500 index, including liquidity, market capitalization, exchange listing, and domicile. The remaining barrier is financial viability.
- Impact: Inclusion in the S&P 500 could lead to greater investor attention and analyst coverage, potentially benefiting the company’s stock.
Regulatory Battles and Future Prospects
- Regulatory Clarity: Coinbase has litigated against the SEC to achieve regulatory clarity for the industry.
- Future Opportunities: The report suggests that a more crypto-friendly regulatory regime may permit Coinbase to offer derivatives trading to US retail customers, a product that generates significant fees for exchanges.
Actionable Insights
- Monitor Coinbase’s Financial Performance: Given its return to profitability and improved financial position, it would be prudent to keep a close eye on Coinbase’s financial performance in the coming quarters.
- Assess Impact of Regulatory Decisions: The outcome of Coinbase’s litigation against the SEC and potential changes in the regulatory environment could significantly impact the company’s future prospects.
- Consider Potential S&P 500 Inclusion: If Coinbase meets the financial viability requirement for S&P 500 inclusion, this could lead to increased investor attention and potentially benefit the company’s stock.
