Q2 Earnings Wrap – Coinbase, Block, MicroStrategy and Robinhood Post Mixed Results

This week, crypto companies including Block, MicroStrategy, Robinhood and Coinbase shared their quarterly financial results for the three-month period ending on Jun 30. Here is a recap of their respective Q2 report cards:

Coinbase delivers lackluster Q2 results, transaction revenue and trading volumes took a hit

Leading crypto exchange Coinbase on Thursday released its much-anticipated financial and operation update for the second quarter.

The exchange's gross revenue across the three-month period totaled $708 million, representing an 8% drop from $808 million in Q1. Net revenue similarly fell 10% in the period to $663 million. Transaction revenue in Q2 dipped 13% quarter-over-quarter to $327 million – constituting $310 million from $14 billion in consumer trading volume and $17 million from $78 billion in institutional trading volume. The underwhelming Q2 results showed that the exchange suffered a net loss of $97 million.

“Q2 was a strong quarter of execution for Coinbase and marked continued progress in our journey to build a company that is increasingly efficient and financially disciplined,” Coinbase said in its shareholders' letter.

The company attributed the shrink in revenue to lower trading volumes and noted it had buffed up its balance sheet having surpassed $5.5 billion in USD resources entailing cash, cash equivalents and USD Coin. For context, the exchange platform logged a trading volume of $217 billion in last year's corresponding quarter. Meanwhile, the total interest income dropped from $241 million to $201 million. USDC stablecoin interest income contracted to $151 million from $199 million in the first quarter partially due to the deteriorating stablecoin's market cap.

Ongoing legal woes

Coinbase has been involved in a dispute with the US Securities and Exchange Commission which filed a lawsuit against the exchange in June. Last month, Coinbase CEO Brian Armstrong had a private meeting with a group of Democrats in Washington to discuss among others crypto legislation.

“This quarter also represented progress for crypto regulation, both in the U.S. and globally […] In the US, we're beginning to see a pathway for bipartisan legislation that could enshrine consumer protections and an equitable market structure framework, while also recognizing the importance of keeping crypto innovation,” the exchange wrote.

Coinbase reported roughly $110 million in transaction revenue in the just concluded month and expects the subscription and services revenue in the current quarter to remain around the same range as $335 million in Q2. The exchange expects to post better figures having cut costs and positioned itself well to advance crypto economy.

COIN stock YTD performance

Coinbase (COIN) share price is up about 170% since the start of the year despite a largely disappointing first-quarter. Investors have in recent months taken a liking to the stock, with the price peaking last month (year-to-date) amid its legal battle with the US SEC.

Regulatory issues

In a recent case concerning Terraform Labs, Judge Jed Rakoff of the US District Court for the Southern District of New York dismissed the application of the ruling issued by Judge Analisa Torres. Previously, Judge Torres had determined that the XRP issuer Ripple Labs did not breach securities regulations by offering XRP on exchanges.

The implications of Judge Rakoff’s declaration could be problematic for Coinbase, as it has a case to answer regarding accusations of operating an unregistered national securities exchange. On its end, the exchange plans to seek dismissal of SEC's case “in its entirety” later today. Coinbase chief legal officer Paul Grewal assured investors during a Thursday earnings call that the exchange is confident in its arguments filed with the court on Jul 20.

“With respect to litigation with the SEC, I want to be very clear — we do think we can win, we expect to win,” he said.

Upcoming Base launch

Coinbase provided more details on its layer 2 network Base on Thursday communicating that it will be available to the public next week. The exchange also unveiled Ethereum bridging functionality on the network built on the OP software stack. Base previously went live in July with access only granted to developers.

MicroStrategy still resilient on its Bitcoin strategy even as spot ETFs ship in

Earlier this week, enterprise analytics firm MicroStrategy released its financial results on Tuesday, disclosing that it purchased 12,333 Bitcoin over the course of Q2. As of June 30, its total holdings reached 152,333 Bitcoin, with a carrying value of $2.3 billion and a market value of $4.6 billion.

MSTR stock YTD performance

The earnings report also noted that the company recorded an impairment charge of $24.1 million for its Bitcoin holdings during that quarter, a significant decline from a charge of $917.8 million reported over the same period last year. Last month, MicroStrategy accumulated another 467 Bitcoin for $14.4 million.

Unrelenting on the Bitcoin strategy despite the onset of spot ETFs

In an earnings call on the same day, MicroStrategy exec chairman Michael Saylor said that the company would remain an attractive option for investors looking to enter the Bitcoin market, reaffirming its commitment to continually stacking more Bitcoin, including the potential proceeds from a planned $750 million share sale. He added that MicroStrategy will maintain its position as a particular Bitcoin operating strategy, even with the potential for incoming ETFs to pull significant capital from prominent hedge funds and sovereign entities.

Block's second-quarter financial results beat analysts' estimates

Financial services and payments company Block separately posted its Q2 earnings on Thursday, topping earnings expectations from analyst. The Dorsey-led tech conglomerate reported an increase in revenue across the quarter against a challenging economic environment. Block's net revenue of $5.53 billion in Q2 was markedly higher the $4.4 billion figure from the same period in 2022.

Bitcoin sales made a significant contribution

A significant chunk of its Q2 net revenue (~$2.4 billion) came from Bitcoin – its second-quarter Bitcoin revenue grew by 34% compared to the same period last year.

“The year-over-year increase in Bitcoin revenue and gross profit was driven by an increase in the quantity of Bitcoin sold to customers, partially offset by a decrease in the average market price of Bitcoin compared to the prior-year period,” the company said in a letter to shareholders.

Cash App, the company’s payments app service launched in Oct. 2013, logged a 37% increase in gross profit to $968 million on the year – $44 million generated from Bitcoin sales on the platform.

SQ stock YTD performance

Meanwhile its Square business reported an $888 million gross profit. Block also took no impairment losses on its Bitcoin (BTC) holdings in the quarter and first half of the year – the company made BTC purchases of $50 million and $170 million in Q4 2020 and Q1 2021 respectively.

“As of June 30, 2023, the fair value of our investment in Bitcoin was $245 million based on observable market prices, which was $142 million greater than the carrying value of the investment after cumulative impairment charges,” the earnings report read.

The digital payment and related services firm also tracked a 27% year-over-year swell in gross profit which totaled $1.87 billion.

Robinhood overturned Q1 losses even with an 18% drop in crypto revenue

California-based online brokerage company Robinhood shared financial results for the last quarter on Wednesday, revealing that it achieved profitability for the first time since going public. It reported a Generally Accepted Accounting Principles (GAAP) net income of $25 million, a noteworthy shift from the substantial $511 million loss incurred in Q1. Jason Warnick, the CFO, attributed this milestone to the team's dedicated work in transforming the business and improving Robinhood's position to create value for shareholders.

Transaction-based revenue fell, but total net revenue is up

Robinhood revealed that for the quarter ending Jun 30, its transaction-based revenue amounted to $31 million, an 18% decrease from the previous quarter. This is equivalent to 16% of the overall trading revenue, which includes options and equities, and witnessed a sequential 7% drop. Still, the company beat Q2 analyst estimates to hit GAAP earnings per share of $0.03 on a total net revenue of $486 million.

HOOD stock YTD performance

The brokerage and investment firm saw a spike in its crypto assets under custody, growing from $8.4 billion in December 2022 to $11.5 billion. Overall, the total assets under custody rose by 13% in the last quarter, reaching an impressive $89 billion, catapulted by a surge in equity valuations and consistent net deposits. Net deposits for the quarter cumulated to $4.1 billion, translating to an impressive annualized growth rate of 21%. Also, the firm’s net deposits over the past 12 months soared by 25% to $16.1 billion.