Summary Revenue "beat" driven by interest income, which should not get a multiple. Retail transaction volume came in a 9-quarter low. Monthly Transacting Users declined q/q and y/y to 8.3 million. Non-competitive take rate perhaps hurting volume. Company issues no guidance for FY 2023. The Quarter Coinbase ( COIN ) reported a very mixed quarter last night (February 21st). The conference call was similarly mixed. The big positive from the report was Q4 revenue that came in at $629 million versus consensus estimates that Bloomberg pegged at $581 million. That $48 million beat came almost entirely from higher than expected interest income of $182 million. Estimates I saw had largely pegged interest income at around $135 million. This revenue number fed through to a Q4 adjusted EBITDA loss of $124 million versus consensus of -$200 million. Some lower-than expected Tech and Development and G&A costs made up the rest of the EBITDA beat. I have to note that both line items were up versus Q3. That's the major extent of the good news here. Almost every other metric was bad. Retail Transaction Volume (the company's biggest revenue driver) was at a nine quarter low at just $20 billion, down 23% q/q, 89% y/y and below expectations. Total trading volume came in at $145 billion which was below expectations that Bloomberg pegged around $149 billion. MTU's (Monthly Transacting Users) and Assets on Platform also underwhelmed at 8.3 million and $80 billion respectively, down from 8.5 million and $101 billion respectively in the third quarter. Both consumer and institutional Assets on Platform declined from $51 billion to $40 billion. The major good news in my mind is that the retail take rate came in surprisingly high at 1.54%. This rate can be considered a mixed blessing, however. It certainly helps retail revenues, but I can't help but wonder if these high fees are driving away volume. I have believed that this company's take rate is so high that it risks making the platform uncompetitive versus other retail-oriented platforms. Too Much Uncertainty for Guidance There is so much volatility around crypto right now from both markets and political pressures that the company did not offer 2023 guidance beyond expected headcount after Q1, some Q1 ranges on subscription revenue ($300-$325 million) and expenses ($625 - $675 million tech and G&A expenses) and a goal of improving on 2022's $371 million adjusted EBITDA loss. The company also disclosed that January transaction revenue was $120 million, a run rate that is 12% over the fourth quarter. That is not surprising given the rally in crypto year to date, but similarly might imply either lower take rate or volumes or both. Count me unimpressed by this limited guidance, particularly given the valuation, the cash losses, the continued insanely high stock-based comp, and the ongoing uncertainty driven by crypto's volatility and the hostile political environment towards crypto and the moves by the SEC against profitable practices like staking. I just don't see why this company trades at over a $13 billion market cap or why it has rallied this year beyond rekindled enthusiasm for all things crypto and a short squeeze (and I'm not sure which is the chicken or the egg there). Risk The risk with playing this name (or any crypto name) is volatility and potential for short squeezes. As with MicroStrategy ( MSTR ), Marathon Digital ( MARA ) and other low-quality, highly-speculative crypto names, the bond market views this company in a far more harsh and realistic light than the equity market with the bonds in the high 50's to low 60's and sporting low-teen yields. I think this dynamic is due to amateur investors typically shying away from the bond market. It has been my experience that the bond market is usually right, but anything could happen. Conclusion I think this stock should trade materially lower. Frankly, given the bonds are so far below par that you could get equity like returns owning them, I don't see why anyone owns the stock over the bonds here unless they are just treating this stock as a pure trading vehicle or want a more volatile and more leveraged bet on bitcoin/altcoins. For anyone looking to short, the key is limiting your risk with either options or an acceptably sized stock short.
