Coinbase Reports Solid Quarter But Notes Competition is Increasing

A month after Coinbase’s (NASDAQ:COIN) direct listing on the Nasdaq, the largest crypto exchange in the US reported its quarterly numbers. While some analysts interpreted the results as a miss, shares in Coinbase have jumped in early trading today.

In a fellow shareholders letter, Coinbase said that they now over 56 million users including 8000+ institutions and retail monthly trades hit 6.1 million during the quarter.

Topline revenue came in at $1.8 billion with $1.5 billion being transaction revenue the bulk of which is retail trading.

Q1 retail transaction revenue was $1.5 billion and marked our first quarter above $1.0 billion. Strength in the quarter was driven by both higher MTUs and elevated trading volumes per MTU compared to prior periods as a result of strong crypto market conditions. In addition, retail transaction revenues benefited from the addition of seven new supported assets for trading throughout Q1. Weighted average retail transaction fee rates were lower in Q1’21 compared to full-year 2020 levels due to higher trading volumes among Coinbase Pro users which provides a tiered fee structure. There were no changes to our transaction fee rates in Q1 and consumers continue to see value in the security, compliance, and ease-of-use that Coinbase offers. Institutional transaction revenue was $85.4 million in Q1, driven by growth in the number of institutional trading customers as well as higher volume traded per institutional customer. Institutional transaction fee rates, on average, were lower in Q1 compared to full-year 2020 levels as a result of higher volume transactions that generate lower fees according to our tiered fee structure.”

Net income for the quarter was $771 million.

Regarding institutional money, in Q1, Coinbase saw $215 billion in Trading Volume and $122 billion in Assets on Platform from over 8,000 institutional customers. Institutions remain a solid opportunity and Coinbase has grown their sales and trading teams and scaled their24/7 client support to meet the needs of these. customers.

Coinbase expects increasing participation in the crypto economy but also noted growing competition in the sector. Considerable interest in digital assets were driven by the price of Bitcoin and the rising demand for other popular coins.

Competitors are said to be supporting “certain crypto assets that are experiencing large trading volume and growth in market capitalization” that Coinbase does not currently support, and products and services that they do not offer. At least not currently.

During the quarter, Coinbase added support for 7 new assets to trade and 13 new assets to custody. In Q1 Coinbase acquired Bison Trails allowing companies to send and store crypto, accept crypto payments, and build their businesses with crypto-native infrastructure.

Coinbase provided the following outlook for Q2 and full-year numbers.

The company expects total trading volume to meet or slightly exceed Q1 trading volume and Q2 MTUs to be higher than Q1 levels. Due to the strong performance of Q1 2021, Coinbase anticipates the annual average net revenue per user will exceed the historical range of $35-$45 per month.

Coinbase said they are focusing on driving MTU and engagement with multiple products – not just trading.

Of note, is that Coinbase was asked about regulatory scrutiny – more specifically the chatter that Binance, a big competitor, is under investigation in the US by the Department of Justice and the Internal Revenue Service. Coinbase CFO Alesia Haas stated:

“We have embraced regulation from the earliest stage and we’ve sought to be the most compliant crypto company and we believe that regulation is really an enabler. We don’t consider it a burden. Others have taken a different approach. So we do welcome the creation of a level playing field. As Brian shared earlier on the call, sometimes we’re slow to market on certain things because we have taken the long road and the regulated approach and others can capture more market share or beat us in certain things that have not taken that path. So, I would say, yes, to have a level playing field where regulators are enforcing regulations would be a win for Coinbase and we believe that’s a competitive advantage of ours that we have also sought to do things the right way and try to partner with regulators to bring thoughtful regulations to the crypto markets.”

Coinbase is at the very beginning of its Fintech journey. While trading popular crypto pairs may be the basis for its inception, a whole lot more in regards to features and services are on the way – think insurance, think banking, think all things finance.

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