Analysis: Coinbase is projected to bring in $456 million in profits in 2018 despite the bear market

According to a document reviewed by Bloomberg, Coinbase is projecting to bring in $1.3 billion in revenue and $456 million in profits in 2018. Last year, Coinbase generated $923 million in revenue and $380 million in profit. This means that the revenues are projected to increase by almost 40% while the profits should increase by 20%.

The profit margin was approximately 41% last year while it is estimated to be approximately 35% this year (see table). The decrease in profit margins is most likely caused by an increase in salaries expenses. Just this year, Coinbase has doubled the amount of staff from 250 to more than 500 now. 

While Bloomberg reported that Coinbase’s revenues come from the commissions on trades as well as from its own cryptocurrency holdings, as the price of most of the cryptocurrencies dropped by about 70% from January, it’s safe to assume that most of the revenues are likely coming in from commissions. In fact, Asiff Hirji, Coinbase’s President & Chief Operating Officer, said yesterday that Coinbase’s revenues “are currently 100% transactional”. Let’s look at Coinbase’s volumes below (data from CoinAPI and Diar).

Even though volumes in Q3 2018 dropped by 78% from an all-time high in Q4 2017, if we look at the totals for 2017 and 2018, Coinbase’s volumes will most likely reach $83 billion in 2018 while they were approximately $68 billion in 2017. That is a 22% increase year on year. 

If the revenues are projected to increase by almost 40% in 2018 while the volumes will likely only increase by 22%, it means that Coinbase is either overestimating the volumes in Q4 2018 or that they are projecting an another significant revenue stream to kick in in Q4, perhaps Coinbase’s suite of Institutional Products, which includes Custody. 

Just yesterday, Coinbase announced that it completed Series E fundraise of $300 million led by Tiger Global, which now puts the company’s post-money valuation at over $8 billion. Following the announcement, Asiff Hirji told Bloomberg that “there is not going to be an IPO anytime soon”. Mr. Hirji added that “at some point [Coinbase] will go public but that’s not even close to the top of the list of things we are worried about now”.

Coinbase will also look to diversify their revenue streams so they would be more predictable in the future. Unless there is another bull run and the volumes shoot up again, it will be very challenging for Coinbase to sustain or increase their revenues in 2019. It remains to be seen how successful other revenue streams will be for Coinbase.

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Analysis: Coinbase is projected to bring in $456 million in profits in 2018 despite the bear market written by Larry Cermak @ October 31, 2018 Larry Cermak

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