Coinbase returns to profit as crypto investment gains offset trading weakness

Oct 29 : Cryptocurrency exchange Coinbase Global returned to profitability on Thursday after three consecutive quarters of losses, helped by lower operating expenses and investment gains on crypto assets that cushioned weaker trading activity.

The results underscore the company's continued exposure to swings in crypto asset prices, with gains in the value of its investment portfolio helping boost earnings even as challenging market conditions weighed on trading volumes and transaction revenue, its largest source of income.

Transaction revenue dropped 43 per cent to $590.2 million in the third quarter, from $1.05 billion a year earlier. Shares of the crypto exchange were down 3.3 per cent in trading after the bell.

The company said macro headwinds have begun to shift and crypto prices rebounded in September.

REVENUE DIVERSIFICATION GAINS TRACTION

Prediction markets emerged as another area of growth for Coinbase during the reported quarter, with revenue exceeding $200 million.

Chief Financial Officer Alesia Haas said prediction markets and derivatives together accounted for about 25 per cent of its total transaction revenue, while subscription and services revenue made up roughly 49 per cent of total net revenue.

"We are seeing the investments that we've made over the past few years to really diversify our revenue, really come to our benefit," Haas said.

Coinbase's prediction markets had become one of the fastest-growing products in the company's history, helping drive additional spot trading volume, Third Bridge analyst Jacob Zuller said.

The expansion also reflects its strategy of diversifying revenue streams beyond its core transaction business, which remains heavily dependent on crypto-market activity.

"They (Coinbase) also treat the category (prediction markets) as near-term revenue, with derivatives as the longer bet," said Colby Howard, president of Heron Events at Heron Intelligence.

"They also see prediction markets as a way in, with traders who start making money moving up to the paid tier," Howard said.

Total operating expenses in the third quarter fell about 17 per cent to $1.15 billion, compared with $1.39 billion in the prior year.

The Wilmington, Delaware-based firm reported a profit of $718.7 million, or $2.51 per share, for the quarter ended September 30, compared with $432.6 million, or $1.50 per share, a year earlier.