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Coinbase returned to net profitability after two consecutive quarterly net losses to report a profit of $719 million for the third quarter.
Revenue was roughly flat quarter over quarter at $1.2 billion, as growth in prediction markets and stablecoin-related revenue helped offset weaker cryptocurrency trading activity.
Coinbase’s profitability big picture
“We delivered growth across key profitability measures in Q3, including our 15th consecutive quarter of positive Adjusted EBITDA,” CFO Alesia Haas said in the earnings release. “These businesses make Coinbase more diversified and resilient across market cycles.”
Financial highlights:
- Coinbase posting an adjusted net income of $78 million.
- Generating $333 million in adjusted EBITDA.
- Subscription and services revenue totaling $570 million, growing 3% quarter over quarter.
- Crypto trading volume market share reaching 10.7%, growing for the fourth consecutive quarter.
- Stablecoin adoption continuing to grow, with the average value of USD Coin held in Coinbase products reaching an all-time high of $22 billion, a 49% year-over-year increase.
Prediction markets helped cushion effects of volatile crypto sector
Coinbase executives also discussed efforts to push to diversify its revenue streams away from volatile retail trading fees. The company’s subscription and services revenue accounted for 49% of total net revenue during the third quarter, up from a 41% share in the same period last year.
The company’s prediction markets surpassed $200 million in annualized revenue after launching earlier this year. Daily traders on Coinbase prediction markets grew by more than 60% quarter over quarter.
“Prediction markets have been one of the fastest-growing products in Coinbase history, growing even through slower sports months driven by crypto contracts where we have a strong right to win,” CEO Brian Armstrong said.
However, Coinbase, like other companies that offer prediction markets trading, is facing regulatory hurdles relating to sports event contracts. This month, the company reached an agreement with the Michigan Gaming Control Board to halt new sports-related event contracts for Michigan customers. The state argues that these contracts fall under its gambling laws, rather than federal jurisdiction regulated by the Commodity Futures Trading Commission. Coinbase is appealing a court ruling on the matter in the United States Court of Appeals for the Sixth Circuit.
Prediction markets expansion moves beyond Kalshi partnership
Looking ahead, the company plans to expand beyond its initial partnership with Kalshi after receiving CFTC approval for its own derivatives clearing organization. Haas provided a snapshot of the company’s roadmap during the analyst Q&A call.
“So we’ll continue to offer contracts through a wide variety of partners,” Haas said. “Kalshi has been a great partner to get us to launch in the early markets, but we now have the opportunity to continue to expand out and offer some of our own contracts as well. So that is what we plan to do.
“Obviously, we’re going to have a great hub around the election coming up. These are going to be big opportunities for people to take views on all of the elections around the US, and we’ll continue to offer new sports and new crypto contracts as well. So exciting things to come.”
Weak crypto trading activity and Binance hack weigh on stock
Despite growth in emerging product lines and a return to net profitability, Coinbase stock sank to a two-year low following the earnings release as Wall Street analysts lowered their price targets due to weak underlying cryptocurrency trading activity. The stock’s decline was affected by a broader cryptocurrency sell-off linked to a hack on rival exchange Binance. During the company’s earnings calls, Coinbase executives said they had seen no evidence of compromised funds on their own platform.
“We are aware, and we’re closely tracking the Binance hack and potential loss of funds,” Haas said. “We’ve extended an offer of support, and we’re in active discussions with our own custody team and see no indications of any activity on our platform.”
