Coinbase Q2 earnings miss as trading slowdown hits revenue

Coinbase Q2 earnings came in below expectations Thursday, giving retail investors a clear read on how much the crypto exchange still depends on active markets. The company reported $1.22 billion in second-quarter revenue, down 14% from the prior quarter, and a net loss of $359 million, according to Coinbase.

Coinbase shares dropped about 5% in after-hours trading after the report. The company had been expected to generate $1.29 billion in revenue for the quarter, while transaction revenue also missed expectations.

Transaction revenue, the money Coinbase earns when customers trade, totaled $599 million. Analysts had expected $628 million, according to the figures cited in the company’s earnings coverage.

Why did Coinbase miss Q2 earnings?

Coinbase said crypto spot trading volume fell more than 20% from the previous quarter as digital asset prices declined and market volatility fell to multi-year lows. Spot trading means buying or selling crypto for immediate delivery, so lower activity directly reduces the fees an exchange can collect.

The company’s subscription and services segment brought in $555 million, equal to 48% of net revenue. Coinbase said that was below its earlier forecast range of $565 million to $645 million because some USDC-related commercial agreements closed later than expected and lower crypto prices weighed on staking revenue.

Staking revenue comes from customers locking up certain crypto assets to help run blockchain networks and earn rewards. When asset prices decline, the dollar value of those rewards can fall too.

Stablecoin revenue totaled $292 million. Coinbase said average USDC held across its products reached a record $20 billion during the quarter, representing more than 30% of USDC in circulation at quarter-end. A stablecoin is a crypto token designed to track the value of another asset, usually the U.S. dollar.

Coinbase gained share even as trading cooled

The slower quarter did not stop Coinbase from gaining ground in the broader crypto trading market. The company said its crypto trading market share hit a record 10.3%, marking its third straight quarter of gains. Coinbase said it picked up share in both spot trading and derivatives, which are contracts whose value is tied to an underlying asset such as Bitcoin or Ethereum.

Coinbase also pointed to diversification beyond Bitcoin trading. The company said 88% of net revenue came from sources other than Bitcoin spot trading, compared with 45% in the second quarter of 2020.

Prediction markets were one of the stronger areas in the report. Coinbase said prediction markets contracts and revenue rose 106% from the previous quarter and surpassed a $100 million quarterly annualized net revenue run rate. Annualized run rate is a way of expressing a shorter period of revenue as if it continued for a full year.

Average Borrow/Lend balances rose by more than $1 billion from a year earlier to $1.49 billion. Coinbase also said the conditions had been met for its commercial agreement with Circle to renew automatically in August.

What else did Coinbase report?

Coinbase ended the quarter with $8.6 billion in cash and cash equivalents and $10 billion in total available resources. The company repurchased 814,000 Class A shares during the quarter. Year to date, Coinbase said it has bought back nearly 7 million shares for $1.2 billion, with about $2 billion left under its repurchase authorization.

The quarter was also active for new products. In May, Coinbase became the first U.S. crypto exchange cleared to offer customers access to offshore crypto perpetual futures through its Deribit subsidiary. In June, it launched Coinbase for Agents, a platform that lets AI agents trade crypto, make payments and manage portfolios for users. Later that month, Coinbase announced plans for tokenized stock trading, crypto and equities options, and new lending and rewards products.

For the third quarter, Coinbase said transaction revenue totaled about $130 million through July 26. The company expects subscription and services revenue of $500 million to $580 million and adjusted expenses of $980 million to $1.08 billion.

This story draws on original reporting from Decrypt.