Proactive Investors - In Coinbase Global Inc’s upcoming full-year earnings call, the Nasdaq-listed cryptocurrency exchange’s financial statements are likely to look a little different.
In its previous third-quarter call, the group said the “re-evaluation of our key business metrics may include changes to or the elimination of certain metrics”.
Perhaps you could take that as meaning: We’ll be changing parts of the balance sheet that make us look bad, though hopefully within statutory limits.
What numbers could Coinbase be looking to, let’s say, add a touch of paint to?
Few of them trended anywhere near the right direction in the previous three quarters.
Transaction revenues plummeted from over US$1bn in the first quarter to only US$365mln in the third.
Income generated from staking rewards and custodial fees steadily declined over the financial year, although interest income saw a significant increase due to the Federal Reserve’s jumbo rate hike cycle.
Monthly transacting users (MTUs) and trading volumes both tanked and net losses over the three quarters tallied more than US$2bn.
Speaking of staking, investors will be keen to hear chief executive Brian Armstong’s thoughts on the recent US$30mln securities fine handed out to competitor Kraken for its staking programme.
Kraken copped the fine as part of the Securities and Exchange Commission (SEC)’s hawkish regulatory crackdown on the cryptocurrency sector.
The SEC has previously whipped Coinbase for not including customer assets held in custody on the balance sheet, leading to a ninefold increase in the company’s balance sheet midway through 2022.
Cash runway under the microscope
Close attention should also be paid to cash and cash equivalents.
Coinbase has had a historically solid runway, with US$5bn in the bank at the end of the third quarter, comprising cash, money market funds, USD Coin stablecoins and “custodial account overfunding” which is apparently customer transaction fees that have been paid but not yet been transferred into a corporate bank account.
But reserves won’t be there forever if it consistently bleeds underlying losses.
Coinbase’s own guidance has the company operating within a US$500mln adjusted EBITDA loss “guardrail”, which I’ll take to mean keeping losses per quarter below this figure.
“This assumes that crypto market capitalisation and volatility do not deteriorate meaningfully below October levels and that we do not see changes in customer behaviours,” the company stated on November 3, 2022.
Eight days later, Coinbase’s former competitor FTX filed for bankruptcy, the cryptocurrency markets had absolutely tanked and bitcoin was around 20% down week on week.
The market failed to recover until after the financial year. Labelling these as headwinds is a bit of an understatement.
Another key figure will be operating expenses. Coinbase has undergone a large-scale workforce reduction over the year which should boost the bottom line.
Will it be enough to keep the dogs at bay?