In the first quarter of 2024, the crypto market confirmed a new bull market cycle after the Bitcoin spot ETF was approved, and then the Ethereum Cancun upgrade was officially launched, and both crypto ecosystems ushered in their own focus moments. Coinbase, as the custodian of many spot ETFs, and its Ethereum Layer2 Base ecosystem are active again. It can be said that Coinbase accurately grasped the pulse of the entire crypto market in the first quarter.

The recently released Coinbase first quarter financial report shows its market participation performance in the first three months of 2024 from the data. Revenue has achieved two consecutive quarters of growth, and trading income has once again become the main source of revenue. Base revenue was officially disclosed in the financial report for the first time. As a leading crypto company, it has made breakthroughs in new business exploration, regulatory compliance, and market adoption.

The data performance is impressive, and Coinbase's revenue has achieved two consecutive quarters of growth

Coinbase announced its first-quarter financial report on May 3, with total revenue of US$1.6 billion, a month-on-month increase of 73% and a year-on-year increase of about 115%, and net profit of US$1.2 billion, achieving two consecutive quarters of growth. Among them, retail trading revenue is the main source of revenue, reaching US$935.2 million, a month-on-month increase of 99%; institutional trading revenue increased by 113% month-on-month to US$85.4 million; subscription and service revenue was US$511 million, a month-on-month increase of 36%.

Coinbase's adjusted EBITDA revenue (earnings before interest, taxes, depreciation and amortization) in the first quarter reached US$1 billion, higher than the whole of last year. Benefiting from the increased volatility of crypto assets and the rise in crypto asset prices, Coinbase's revenue performance in the first quarter of this year was much better than expected, with earnings per share of $4.40, while analysts expected $1.15.

Adoption of new accounting standards

However, Coinbase pointed out in its financial report that $737 million of pre-tax crypto assets in the first quarter net profit were market-valued gains, most of which have not yet been realized.

This is because in December last year, the Financial Accounting Standards Board (FASB) of the United States announced the first batch of cryptocurrency accounting rules, stipulating that companies must measure their cryptocurrency holdings at fair value, that is, the latest market value, and changes in fair value will be directly included in net income. This means that companies such as Coinbase, MicroStrategy, and Tesla can record the highs and lows of the value of their cryptocurrency holdings. Previously, when the price of a crypto asset fell below its purchase price, the company was required to record an impairment loss, and if it was not realized, it could not record a gain.

MicroStrategy founder and former CEO Michael Saylor said on Twitter that this move will make it easier for companies to adopt Bitcoin as a treasury asset. The new rules will take effect in 2025, but FASB also said that companies can start applying these rules in advance if they wish, and Coinbase adopted them in the first official report after the introduction of the rules, which shows that it has a very positive attitude towards mainstream adoption in the crypto industry.

Trading revenue once again becomes the main means of generating revenue

The figure below is a visualization of Coinbase's first quarter financial report income and expenditure by analyst Deltacode.eth. It can be seen that transaction-related income occupies the main advantage in the revenue section, among which consumer transaction income occupies an absolute advantage; in the subscription and service revenue section, USDC's interest income and blockchain rewards contribute the most.

BlockBeats previously interpreted Coinbase's Q2 2023 financial report. At that time, Coinbase's transaction income was no longer the main source of revenue. It was surpassed by the "subscription and service" revenue category for the first time, and in Q3 2023, subscription and service revenue exceeded transaction income again. In the fourth quarter, as the crypto market improved, transaction income once again exceeded subscription and service income, including USDC interest income, staking and custody fees.

However, in the fourth quarter of 2023, transaction revenue accounted for 55% of total revenue, and subscription and service revenue accounted for 39%. In the first quarter of this year, transaction revenue accounted for 65%, and subscription and service revenue accounted for 31%. It can be said that transaction revenue has truly become the "pillar of revenue generation" again this year.

Related reading: "Coinbase, which is fed by US debt, is still on the road to survival"

However, one of the data worth noting in subscription and service revenue is "other subscription and service revenue", which is US$63.7 million, a month-on-month increase of 59%. It mainly refers to Coinbase's consumer-oriented subscription service product Coinbase One, which had more than 400,000 paying members in the first quarter and still has room for growth.

Base's revenue soared, exceeding ETF custody fee revenue

In addition to the Coinbase revenue-generating tool mentioned above, the most eye-catching thing in Coinbase's first quarter financial report is Base. The first question in the shareholder question-and-answer session in the first quarter earnings call was "How is Base's profitability? How to bring value to shareholders?", which is enough to show the attention and expectations of Coinbase stakeholders for Base.

In August 2023, Base went online on the mainnet. As a key link in Coinbase's expansion into new business areas, Base has been extraordinary from the beginning. However, due to the low transaction revenue of Base in the third and fourth quarters of 2023, Coinbase did not clearly reflect the revenue of Base in the financial report. In the first quarter of this year, we finally saw the existence of Base. Coinbase has added a new "other transaction income" to the revenue category, which refers to the combination of Base sorter fees and payment-related income.

Coinbase COO Emilie Choi said in response to the above shareholders' questions that Base is still in its early stages, and the team's main focus is to increase developer activities, promote adoption and, increase transaction activity, etc. Emilie said, "Base has very strong unit economics. Therefore, as trading volume grows (which is the key growth metric we focus on), we believe that Base can become a substantial contributor to our revenue and profits in the long run."

The related revenue category refers to "a broad category of everything related to payments on the platform, including instant withdrawal fees, debit card fees, business fees, and some of the more risky types of products related to payments in the portfolio." Emilie also said that Base has been the largest contributor to the quarter-on-quarter growth in the "other transaction revenue" category.

It is worth noting that Base sorter revenue exceeds the Bitcoin spot ETF custody service fee revenue provided by Coinbase. As the custodian of 8 of the 11 issuers, Coinbase's custody assets increased by 69% month-on-month to US$171 billion, and custody fee revenue increased by 64% month-on-month to US$32 million. However, based on the historical data before the launch of Base, Base’s sorter revenue in the first quarter of this year is higher than Coinbase’s custodial service fees over the years.

According to Dune data, Base's daily revenue has been rising steadily in the first quarter of this year, reaching an all-time high at the beginning of this month. Developer activity on Base increased 8 times month-on-month in the first quarter, and in the past 30 days, Base processed more than twice the volume of Ethereum's transactions, more than any other L2.

In March, Base experienced explosive growth, with revenue increasing more than 4 times year-on-year. According to the public chain financial report data released by BlockBeats, due to the sharp drop in DA costs and the surge in the number of users, excluding the DA cost of $6.34 million, the Base network's gross profit in March alone was twice that of Arbitrum's gross profit for the entire first quarter.

Related reading: "2024 Q1 Public Chain Financial Report: How many chains are still making money? "

What does it mean for Coinbase?

Coinbase is currently the only sorter on Base, which means it is solely responsible for transaction sorting and batch processing for Base users. In the 2023 Q2 earnings call, Brian Armstrong said that Coinbase's role as the only sorter in the context of Base's business model, "Base will be monetized through sorter fees, and Coinbase can earn sorter fees when executing any transaction on Base."

Although Base's business model has generated positive feedback, the market still holds an ambiguous attitude towards the significance of Base to Coinbase. Oppenheimer senior analyst Owen Lau believes that for Base, revenue cannot remain stable and hype is needed to drive revenue growth. "A new project can support Base to generate higher revenue, but if there is no project or the project disappears, Base's revenue will drop significantly."

This can be seen from the impact of Friend.Tech's hot launch in the third quarter of last year and its silence in the fourth quarter on Coinbase's "other transaction revenue" data. Therefore, analysts still believe that the number one driver of revenue is still Coinbase's trading volume, not Base's trading volume.

During the conference call, someone asked Coinbase if it could disclose Base's revenue in more detail, but Coinbase CFO said that it had not yet allocated Base's specific technology, development or G&A costs, saying "We don't do product income statements, we look at total revenue and total expenses", which also made some analysts believe that Coinbase is not ready to release more detailed revenue information for Base.

But instead of viewing Base as a killer for Coinbase's revenue, it is better to view it as a test field for Coinbase. Currently, Base's revenue has exceeded ETF custody fee revenue. Given that custody services are a highly competitive business and will be fought for by traditional banks and brokerage firms in the future, Base's growth potential will definitely exceed custody services. In addition, as a chain product that distinguishes Coinbase from traditional financial companies, Base can build more new things in the future to add more imagination to Coinbase.

Catching up with the first quarter of 2021, Coinbase has a long way to go

After Coinbase released its first quarter financial report this year, many people on social media said that the performance of the Q1 financial report in 2024 was almost the same as that of the Q1 financial report in 2021, and hoped that Coinbase's revenue in the remaining three quarters of 2024 would surpass the performance in 2021. However, Coinbase stated in its shareholder letter that total transaction revenue in April was about US$300 million, slightly lower than the monthly average revenue of about US$360 million in the first quarter.

However, May has just begun, and Coinbase also looked forward to its next plan in the financial report. First, it plans to drive revenue growth by expanding trading and stablecoin revenue streams, which involves the international expansion of USDC and deeper integration into the crypto economy. The second is to enhance the practicality of cryptocurrencies by promoting the use of stablecoins and supporting Base developers. Finally, Coinbase will continue to work towards clarity in industry regulation. Each of these means a more stable source of revenue and a clearer regulatory environment for Cinbase's crypto business.

Related reading: "US judge "chooses side" with SEC in Coinbase lawsuit, good for Base ecosystem? "

In addition, during the conference call, Coinbase also mentioned the Coinbase Wallet product many times, "Smart Wallet is the next platform we are building. It will be on top of Base, giving users and developers an extremely simple and unified experience, allowing them to use all these applications." It can be foreseen that when the wallet product further connects the Coinbase and Base ecosystems, there will be a wider range of user participation and the possibility of a significant boost in revenue.

In addition to the product side, Coinbase and Base will continue to exert their efforts in ecological development and marketing. Whether it is NBA event marketing or increasing development and administrative budgets, as well as Onchain Summer and hackathons, they will lay an optimistic expectation for Coinbase's next business performance. We will wait and see how Coinbase performs in the future.

Reference:

https://s27.q4cdn.com/397450999/files/doc_financials/2024/q1/0dac9418-51fc-43c7-bb60-ee8b65a9bebe.pdf

https://unchainedcrypto.com/what-bases-rapidly-growing-revenue-and-usage-means-for-coinbase-stock/

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