Coinbase Earnings: Heavy Cost-Cutting and Higher Revenue Narrow Losses Sharply

No-moat-rated Coinbase COIN reported improved results as improved cryptocurrency market conditions, increased interest income, and significant cost-cutting efforts led to significantly reduced losses for Coinbase. The company’s first-quarter net revenue fell 34% from last year but increased 22% from last quarter to $772.5 million. Meanwhile, net loss was $79 million, inclusive of $144 million in restructuring expenses, compared with a loss of $430 million last year. As we incorporate these results, we are maintaining our $80 fair value estimate for Coinbase. While we do see the shares as undervalued, we highlight our Very High Morningstar Uncertainty Rating for Coinbase, as it faces significant regulatory uncertainty due to the Wells notice it received from the SEC and the firm remains exposed to cryptocurrency markets, which are inherently volatile.

Coinbase’s sequential revenue growth came from both its trading business and its subscription and service segment. Trading revenue decreased 63% from last year, but increased 16% from last quarter to $375 million. The increase in trading revenue was mainly driven by pricing and not volume, which was effectively flat from last quarter. Average retail pricing improved to 1.68% of trade size from 1.54% last quarter, primarily due to mix shift. Coinbase also reduced institutional trading discounts, leading to institutional trading revenue increasing 66% from last quarter to $22 million.

Coinbase’s results also benefited from impressive cost-cutting efforts. Operating expenses fell 48% from last year and 24% from last quarter to $896 million. This is inclusive of the $144 million in restructuring expenses, without which operating costs would have declined 37% from last quarter. This is a larger reduction then we had expected and puts the firm’s cost structure on much better footing. While painful, we see these cost reductions as a necessary step to preserving the firm in difficult market conditions.