Coinbase returns to profit as crypto investment gains cushion trading weakness

Coinbase Global reported a third-quarter net income of $719 million in its latest earnings, primarily attributed to a $715 million gain in crypto investments. However, when stripping away the markup from crypto price swings, the company's core business actually lost money compared to the previous year, despite gaining market share.

The substantial profit is largely a result of price gains rather than operational gains. If we exclude those gains and other investment profits, adjusted net income dropped to $78 million. This decline points to a slower trading environment. Transaction fees fluctuate with prices and trading activity, and the report mentions a softer market.

While Coinbase expanded its revenue from trading, the overall pie is getting smaller, which is insufficient to offset the loss. The report doesn't provide a net revenue figure, making it difficult to gauge the decline. Beyond trading, the company is making strides, but it's not yet a comprehensive hedge. A significant portion of subscription and services revenue comes from interest on stablecoin reserves, which depends on interest rates rather than trading.

Prediction markets generated over $200 million in annualized revenue, though CFOs suggest they're less dependent on crypto price fluctuations. This area shows promise, but it's still a small contributor. It will be interesting to see if adjusted EBITDA continues to recover based on operational performance rather than cryptocurrency prices.

Additionally, the growth trajectory of prediction markets will be crucial to monitor, especially now that summer sports season is winding down.