Coinbase’s share price rose after it beat analyst expectations in Q1, with revenues rising 22% QoQ to $736m. While this figure is 37% lower than Q1 22 (reflecting the crypto downturn in 2022), cost-cutting exercises have led the US-based crypto exchange back to profitability, with adjusted EBITDA rising 1,343% YoY to $284m.
Trading volumes were down 53% YoY to $145bn (flat on a quarterly basis), while transaction revenue declined 63% YoY to $374.7m (up 16% QoQ). To reduce the impact of future volatility, Coinbase has continued to grow its subscription and services segment (including staking), with revenues growing 138% to $361.7m and accounting for a much higher share of revenues overall.
Coinbase noted the ongoing recovery of the market, with the average crypto market cap increasing 16% QoQ in Q1, though volatility was at 8%. The company also saw bitcoin (which has risen in value significantly this year) account for a higher share of trading volume (32%) and revenue (36%) in Q1 23.
EBITDA gains were primarily due to cost cutting. Total operating expenses declined 24% QoQ to $896m, the lowest level of expenses since Q1 21, including $144m in money saved from Coinbase laying off a fifth of its workforce in January. Expenses were down 31% QoQ for sales and marketing, 39% across tech and development and 34% across admin expenses.
Aside from cost cutting, Coinbase recently announced the launch of its new International Exchange, which will allow users outside the US to trade assets on the platform. This comes after the company received a notice from the US Securities and Exchange Commission (SEC), in which the US regulator said it may allege that Coinbase was selling unregistered securities – a violation of US federal law.
Coinbase responded at the end of April to say that it doesn’t list securities and that the SEC provides insufficient regulatory guidance for crypto companies. In the call, Coinbase said it doesn’t expect any courtroom proceedings to affect its roadmap and that it will continue to fight for clearer regulation on crypto in the US, which it sees as lagging behind Europe on this topic.
By diversifying revenues and cutting costs, Coinbase believes it can achieve its goal of positive adjusted EBITDA in 2022. However, the company is facing some headwinds in the quarter to come, including a lower USDC market cap and higher legal and rental expenses.
Key questions remain about whether Coinbase can achieve its goal of being a profitable company in all market conditions, and whether incoming regulation will lead it to push for more business beyond US borders. FXC will be tracking progress on both of these questions as the year goes on.