Coinbase posts "strong" but lower-than-expected Q3 earnings with profits up nearly 400% from last year

The company's retail Monthly Transaction Users were down 16% from the last quarter.

Coinbase Global reported "strong" but lower-than-expected third-quarter financial results Tuesday. The Wilmington, Del.-based trading platform for Bitcoin and other cryptocurrencies reported a non-GAAP net profit of $406 million, or $1.62 per share, up nearly 400% from the previous year, on revenue of $1.3 billion.

Wall Street had expected earnings of $1.82 per share on revenue of $1.6 billion, according to FactSet. Coinbase shares continued trading lower afterhours.

Coinbase, which relies on the market value of digital currencies to generate income, noted that transaction revenue was $1.1 billion and $145 million in subscription and services revenue. In addition, Verified Users grew to 73 million from 68 million the previous quarter, but retail Monthly Transacting Users, or MTUs, were 7.4 million in the third quarter, down 1.4 million, or 16% from the previous quarter.

In its shareholder letter, Coinbase provided an explanation about its third-quarter performance:

"While we entered Q3 with softer crypto market conditions, driven by low volatility and declining crypto asset prices, market conditions improved meaningfully later in the quarter which we have continued to see into early Q4. This backdrop led to global crypto spot trading volumes declining 37% in Q3 as compared to Q2, however, Coinbase outperformed the market with total trading volumes of $327 billion, a 29% decline in the same period. We have consistently indicated that volatility is a key factor influencing our transaction revenue. Q3 illustrates this point."  

Looking ahead, Coinbase said it expects retail MTUs and total trading volume will be higher in the fourth quarter than in the third. So far in the fourth quarter – in October – the company said that total crypto market capitalization increased roughly 35% compared to the end of September and while crypto asset volatility remained elevated. Retail MTUs and total trading volume were 11.7 million and $186 billion in October, respectively.

Coinbase added that due to its strong October performance, it's tightening its full-year outlook, estimating retail MTUs of between 8 million and 8.5 million and average net transaction revenue per user "in the high $50's per month." What's more, the company said it expects transaction expenses as a percent of net revenue for 2021 to be "in the mid-teens" and technology and development and general and administrative expenses – excluding stock-based compensation – will be in the neighborhood of $1.4 billion. Sales and marketing expenses are expected to be about 10% of net revenue for the year thanks in part to its announcement in October that it's the exclusive cryptocurrency platform partner of the NBA, according to the shareholder letter.

The company also said it will continue to invest aggressively to strengthen its systems, infrastructure and customer service while pushing forward on product innovation and increased marketing efforts to increase broader awareness of crypto.