Why Is Coinbase Expecting a 50% Drop in Revenue This Year?

Coinbase CEO Brian Armstrong has said that he expects revenue to fall 50% or more, blaming the state of the industry and shaken investor confidence following the recent collapse of industry peer, FTX. The revenue projections were revealed by the US-based crypto exchange through its official Twitter page. According to the post, the executive the firm’s revenue for the 2022 Fiscal Year “to be less than half” that of the 2021 fiscal year. 

Our CEO recently sat down with David Rubenstein at Bloomberg. Brian indicated that he expects Coinbase FY2022 revenue to be less than half of FY2021 revenue.

This view is consistent with the outlook provided on our Q3 earnings call on Nov 3, 2022.https://t.co/iCDO16bFf2

— Coinbase (@coinbase) December 7, 2022

Speaking to Bloomberg on David Rubenstein Show Peer-to-Peer Conversations, Armstrong said that the crypto exchange’s revenue this year will likely be cut in half or more from the $7 billion it recorded in 2021.

“With everything coming down, it is looking, you know, about roughly half that or less.”

The crypto sector has lost over $2 trillion as higher interest rates and growing concerns over an economic downturn cratered prices, eliminating key industry players like Voyager Digital, Three Arrows Capital, and Celsius Network.

The expectation of a revenue drop follows the crypto exchange struggling amid sharp price declines in crypto prices as well as the continuing contagion effects from several bankruptcies this year, including, as confirmed by Armstrong, the collapse of crypto firm FTX.

Estimated Coinbase Revenue Decline is Unsurprising

The estimated decline in Coinbase’s yearly revenues does not come as a surprise, particularly to market participants, and is in tandem with analysts’ predictions, who said they expect a lower top-line number from the San Francisco-based crypto firm.

Before the report on the exchange’s most recent earnings (Q3) was made public, a survey by FactSet predicted that Coinbase would post annual revenue of $3.3 billion in 2022. According to their most recent estimations, it will be $3.2 billion. If the predictions prove accurate, the exchange would have posted declines of up to 59% compared to 2021.

On the other hand, the Coinbase exchange had forecasted a possible loss of no more than $500 million based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This compares to almost $4 billion of positive EBITDA last year. Based on FactSet data, however, Coinbase actually generated $7.8 billion in revenue in 2022.

Coinbase shares, which have already plummeted more than 80% this year, were down 1% on the news. Based on Nasdaq data, Coinbase stock is down over 83% in 2022 and is among the worst-performing this year. According to data from Refinitiv, analysts expect Coinbase’s revenue to plunge 75% to $621.5 million in Q4.

The plunging stocks come as a growing number of investors continue to step away from cryptocurrency-related companies, especially following the recent collapse of Sam Bankman-Fried’s crypto empire.

Prominent Investors Comment On FTX Crisis

Sam Bankman-Fried, aka SBF, has been criticized for mismanagement of customer funds, with industry giants such as Binance CEO Changpeng Zhao calling him a “master manipulator.” However, some high net-worth investors like Bill Ackman have come out in recent days to defend SBF, saying they believe he may be telling the truth.

Call me crazy, but I think @sbf is telling the truth.

— Bill Ackman (@BillAckman) November 30, 2022

Shark tank’s Kevin O’Leary has also defended Bankman-Fried. Replying to Bill Ackman’s tweet, O’Leary said, “I lost millions as an investor in @FTX and got sandblasted as a paid spokesperson for the firm but after listening to that interview I’m in the @billAckman camp about the kid!”

In a recent tweet by Armstrong, the Coinbase CEO said he denies the claims made by SBF, where the since-shamed former FTX CEO alludes to “accounting errors” as the source of FTX’s troubles. 

It’s stolen customer money used in his hedge fund, plain and simple.

— Brian Armstrong (@brian_armstrong) December 3, 2022

In his tweet, Armstrong says, “I don’t care how messy your accounting is (or how rich you are) – you’re definitely going to notice if you find an extra $8B to spend. Even the most gullible person should not believe Sam’s claim that this was an accounting error.”

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