Cryptocurrency companies have spent years trying to make money from more than just people buying and selling bitcoin BTC$75,596.92. Their latest earnings show how hard that can be.
Coinbase COIN$134.19 and Robinhood HOOD$79.31 reported weaker crypto trading revenue last week. Circle CRCL$66.45, the company behind the $USDC stablecoin, reported an 8% drop in reserve income, little change in $USDC supply from a year earlier and a 5% cut to its workforce in its latest earnings statement on Wednesday. Shares of all three companies are down significantly over the past 5 days led by Circle which fell 11%.
The results come as crypto prices slide following Tuesday's midterm elections, adding to the pressure on an industry already dealing with a slowdown in trading.
Coinbase and Robinhood have moved into other financial services, while Circle has bet on stablecoins becoming a common way to move money. But the latest numbers show that adding products doesn't always mean adding dependable revenue.
StoneX analyst Mark Palmer said Coinbase's third-quarter results "should help to dispel the notion that the company is simply a leveraged bet on crypto trading volumes."
Barclays analyst Benjamin Budish took a less upbeat view, warning that Coinbase's reliance on spot crypto trading "remains a key challenge" despite its growing range of products.
The trading problem
Coinbase has expanded into custody, stablecoins, lending and prediction markets. Robinhood has pushed beyond its roots as a stock-trading app into retirement accounts, banking products and other financial services. Those efforts have given both companies more ways to make money. They haven't made crypto trading any less cyclical.
Coinbase's third-quarter transaction revenue fell 23% from a year earlier to $590 million. Consumer spot trading volume dropped 9% from the previous quarter, while institutional transaction revenue fell 8%.
Yet Coinbase held total revenue near $1.22 billion and increased adjusted EBITDA by 60% from the previous quarter to $333 million, helped by lower expenses and growth in newer products.
"The crypto market's cyclical trough is doing what troughs do, revealing which businesses have built something durable," Palmer wrote in an Oct. 30 note.
He points to record $USDC balances and prediction markets that now generate more than $200 million in annualized revenue.
But the earnings improvement wasn't as strong as it first appeared. Clear Street's Owen Lau said the earnings beat came from lower costs, not stronger trading, while Barclays cut its price target to $120 from $149, citing a weak fourth-quarter outlook.