Coinbase reports 63% drop in revenue amid crypto industry slump
When crypto exchange Coinbase went public in April 2021, it was a triumphant moment for the emerging cryptocurrency industry.
But the company suffered a bleak crisis in 2022, as it grappled with a crypto-market crash that sent its stock price plummeting and forced it to lay off hundreds of employees.
Those difficulties continued on Tuesday when Coinbase reported a 63 percent drop in revenue in the second quarter, turning into a loss of $1.1 billion from a year ago.
The company blamed the cryptocurrency’s “fast and furious” decline, and said revenue was $808 million, down from $2.2 billion a year earlier. Total monthly customers rose to nine million from 8.8 million last year, but decreased from 9.2 million last quarter. Coinbase also expects its user numbers to continue declining over the next three months.
In an earnings call on Tuesday, Coinbase CEO Brian Armstrong emphasized the cyclical nature of cryptocurrencies and noted that the company has survived past recessions.
“It looks scary,” he said. “But it’s never quite as bad as it seems.”
The results illustrate the stark challenges Coinbase is facing at a turbulent moment for the cryptocurrency industry. Leading cryptocurrency prices collapsed in May and June as a series of experimental crypto projects collapsed, plunging investors into financial ruin. The crash led to layoffs across the industry, dampening the excitement that escalated last fall when the price of bitcoin hit a record high.
As part of the industry crash, Coinbase’s stock price has fallen nearly 75 percent since November. The company’s success is largely related to the volatility of the broader crypto market. In the second quarter, more than 80 percent of its revenue came from trading fees it charged customers to buy and sell digital assets like Bitcoin and Ether.
In June, Coinbase laid off 18 percent of its employees, or about 1,100 employees. Mr. Armstrong said at the time that the company was “over-recruiting”.
Coinbase’s recent struggles have raised fears that it may squander its early leadership in the industry, as competitors such as Binance and FTX expand during the downturn.
Despite its early start, Coinbase has not had a strong foothold in the international market, and has recently failed in its expansion efforts in India. The most sought-after product launch of the year — a marketplace for digital collectibles known as non-fungible tokens, or NFTs — didn’t get much customer interest. Last year’s hiring spree led to overspending and inflation, as the company’s expenses more than doubled.
“Maybe we could have been slower over the last couple of years,” Mr. Armstrong said on the call.
Coinbase has also been subject to regulatory scrutiny. Last month, the Department of Justice filed insider trading charges against a former Coinbase employee. In a related action, the Securities and Exchange Commission said that it considers some digital currencies listed on Coinbase to be securities, and therefore subject to regulation as stocks or bonds — a position the company contested.
In a letter to shareholders on Tuesday, Coinbase said the Securities and Exchange Commission sent the company a “voluntary request for information” in May about the listing process. “We do not yet know whether this investigation will become a formal investigation,” the letter said.
Coinbase’s competitors seem to be getting better during the downturn. FTX, another cryptocurrency exchange, has achieved financial results similar to those of last year, according to its CEO, Sam Bankman-Fred. Binance, the largest exchange in the world, announce In June it was looking to fill 2,000 jobs.
However, Coinbase is still one of the most trusted and recognized crypto brands in the US, known for its Super Bowl commercial featuring a bouncing QR code. Last week, the company announced a partnership with BlackRock, the world’s largest asset manager, to help institutional investors trade bitcoin.