US cryptocurrency exchange Coinbase announced its first-quarter (Q1) financial report on May 8th local time. Due to market trading cooling down compared to the post-US election surge in the previous quarter, revenue and net profit did not meet expectations.
As of March 31st, the adjusted net profit was $527 million. Earnings per share were $0.24, lower than the market's general expectation of $1.93. Total revenue was $2 billion, slightly below the expected $2.12 billion and lower than the $2.3 billion in Q4 2024. Q1 trading revenue declined 19% to $1.2 billion, with trading volume dropping 10%.
Potentially affected by this news, Coinbase (COIN) stock fell 2.67% in after-hours trading, after rising 5% in the previous trading day. COIN has declined 16.83% since the beginning of the year.
Revenue
Q1 saw increased average volatility in cryptocurrency assets, with BTC reaching a historical high in January. However, influenced by tariff policies and macroeconomic uncertainty, cryptocurrency prices declined in sync with the overall market. Compared to the end of the fourth quarter, the total cryptocurrency market value dropped 19% to $2.7 trillion at the end of the first quarter.
In this context, Coinbase's revenue reached $2 billion, a quarter-on-quarter decline of 10%; net income plummeted 94% quarter-on-quarter to $66 million, primarily due to a $597 million pre-tax loss in crypto asset investment portfolio, mostly unrealized losses. Adjusted net profit was $527 million, with adjusted EBITDA at $930 million.
Trading Revenue
Coinbase's financial report shows trading as its primary revenue source, accounting for over 60% of total revenue. Q1 trading revenue was $1.3 billion, a quarter-on-quarter decline of 19%. Coinbase's spot total trading volume decreased 10% quarter-on-quarter to $393.1 billion, but outperformed the global spot market, which saw a 13% decline. In derivatives, Coinbase's trading volume reached $803.6 billion, with continuous market share growth.
In Q1, retail trading volume was $78.1 billion, a quarter-on-quarter decline of 17%. Retail trading revenue was $1.1 billion, a 19% quarter-on-quarter decline, largely consistent with the trading volume drop. For institutional trading, the volume was $315 billion, a 9% quarter-on-quarter decline, with institutional trading revenue at $99 million, a 30% quarter-on-quarter decline.
Besides the macro background, the second factor in quarter-on-quarter revenue decline was the derivatives business. The report states that Coinbase is investing in trading rebates and incentive measures to build liquidity and attract customers. These rebates and rewards have been deducted from institutional trading revenue.
Other Trading Revenue
Q1 other trading revenue was $68 million, remaining flat quarter-on-quarter. Base's transaction volume grew 16% quarter-on-quarter, but average revenue per transaction decreased 21%.
Subscription and Service Revenue
Q1 subscription and service revenue was $698 million, a 9% quarter-on-quarter growth, mainly due to stablecoin and Coinbase One revenue growth, with USDC market value reaching a historical high of over $60 billion. However, blockchain rewards revenue declined 9% quarter-on-quarter, partially offsetting this growth. The decline was primarily due to lower average asset prices, especially for ETH and SOL.
Q1 stablecoin revenue grew 32% quarter-on-quarter to $298 million. Coinbase stated this growth was partially offset by lower average interest rates. The average USDC holdings in Coinbase products grew 49% quarter-on-quarter to $12.3 billion.
Other subscription and service revenue was $141 million, a 5% quarter-on-quarter growth. Coinbase One subscription users reached a historical high in Q1, with Coinbase One Premium service ($300 per month) also seeing growth.
Expenses
Q1 total operating expenses were $1.3 billion, a 7% quarter-on-quarter increase of $91 million, mainly due to increased variable expenses from market activity at the beginning of the quarter and losses from crypto assets held for operations. Technology and development, general and administrative, and sales and marketing expenses increased by $40 million, a 4% quarter-on-quarter growth, primarily from increased marketing spending (including performance marketing and USDC rewards) and customer support costs. At the end of the quarter, Coinbase's full-time employees grew 5% quarter-on-quarter to 3,959.
Trading fees were $303 million, 15% of net income, a 4% quarter-on-quarter decline. The decline was mainly due to reduced customer trading activity and lower blockchain rewards fees related to average asset price decreases.
Technology and development expenses were $355 million, a 4% quarter-on-quarter decline. The decline was primarily due to reduced personnel-related expenses despite an increase in total employees. General and administrative expenses were $394 million, a 9% quarter-on-quarter growth. The growth was mainly from increased customer support and personnel-related costs. Sales and marketing expenses were $247 million, a 10% quarter-on-quarter growth.
Outlook
In April, Coinbase's total trading revenue was approximately $240 million. Coinbase expects Q2 subscription and service revenue to be between $600 million and $680 million, as anticipated stablecoin revenue growth will be offset by blockchain rewards revenue decline due to asset price drops; trading fees as a percentage of net income will be around 15%; technology and development, and general and administrative expenses will be between $700 million and $750 million.
Notably, Coinbase is focusing on the derivatives market, announcing the acquisition of Deribit, the world's largest Bitcoin and Ethereum options exchange, for $2.9 billion, including $700 million in cash and 11 million Coinbase common shares, subject to customary price adjustments. The transaction is pending regulatory approvals and other customary closing conditions, expected to be completed by year-end. Last year, Deribit's outstanding contracts exceeded $30 billion, with trading volume over $1 trillion.
Coinbase CFO Alesia Haas stated in the financial report conference call: "We expect Deribit to immediately enhance our profitability and increase the diversity and sustainability of our trading revenue."
Additionally, Coinbase CEO Brian Armstrong mentioned in the investor call that this quarter, Coinbase will launch a pilot project allowing businesses to use stablecoins for payments and expenses.
