Coinbase delivers strong first quarter earnings after cost cuts

Coinbase reported first-quarter revenue up 22% as cost-cutting measures paid dividends. Shares popped 7% in after-hours trading.

Interest income rose 32% to $240 million, above estimates of $205 million, of which $199 million was derived from USDC. In the fourth quarter, interest income totaled $146 million, of which $182 million was USDC.

The cryptocurrency exchange said revenue for the first quarter was $736 million, coming in above the $658 million estimate of analysts surveyed by FactSet. EBITDA was positive $284 million, better than the negative $36 million estimated. 

Subscription and services helped drive this growth, said the firm’s vice president of investor relations, Anil Gupta, in an interview with The Block following the release. Subscription and services revenue, which included staking and interest income, was $362 million, above estimates of $316 million. 

The declining circulating supply of USDC may have a more outsized impact on Coinbase’s revenue as the year progresses, Mizuho’s Ryan Coyne told The Block ahead of time. Gupta confirmed the exchange expects interest income derived from USDC is expected to fall in the second quarter due to this.

Staking accounted for $73.7 million, above the $71 million estimated by FactSet. It did, however, lead to an increase in transaction expenses as rewards are paid out to users, the firm noted. Staking was under the microscope during the first quarter. Kraken reached a $30 million settlement with the Securities and Exchange Commission. Shares in Coinbase tumbled as the SEC came down on staking as staking revenues came under threat.  

Coinbase ‘fully prepared’ to fight the SEC

Coinbase also provided shareholders with an update on its looming legal battle with the Securities and Exchange Commission, a key U.S. regulator. The SEC gave Coinbase official notice that it was the subject of an investigation last month with a Wells Notice, a document that can precede an enforcement action.

The company responded to the notice last week, warning that an enforcement action against Coinbase would not be in the country’s interest. Separately, Coinbase is suing the SEC to answer its request for a digital asset-specific rule.

“Despite our ongoing engagement with the SEC, they have not shared their specific concerns with Coinbase or provided any clarity or workable path forward for the industry. While we hope to avoid litigation, we are fully prepared to defend ourselves and advocate for the entire crypto industry if necessary,” Coinbase wrote in its shareholder letter.

Coinbase said its “preferred path would be for Congress to take action to provide clear rules of the road for the industry.” The exchange hinted that “real action” could be taken on “substantive, bipartisan legislation” during the second quarter of 2023, which ends in June.

“We are also digging in on our direct advocacy efforts in Washington, D.C. We need crypto-specific rules and regulation, not more enforcement, to help this innovative technology flourish and for America to maintain its leadership position,” the letter said.

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