Coinbase's fourth-quarter earnings outperformed analyst expectations. Why is the stock dropping?

Coinbase Global Inc. earnings were above Wall Street forecasts in the fourth quarter, with income more than quadrupling as the largest U.S. cryptocurrency exchange benefitted from a wild period that saw bitcoin establish a record before plummeting drastically.

Coinbase reported net income of $840 million, or $3.32 per diluted share, in the fourth quarter, while its monthly active user base increased to 11.4 million, the company said Thursday, compared to earnings of $177 million on net revenue of $497 million the previous year.

In after-hours trading on Thursday, shares of the cryptocurrency exchange fell more than 3% to $172. The stock price of Coinbase, which has been hovering around an all-time low in recent weeks, does not appear to have risen as a result of Thursday's earnings announcement.

The company expected that retail monthly transaction users and overall trading volume would be lower in the first quarter than in the previous period. Coinbase ascribed the shift to lower crypto asset volatility and a 20% drop in crypto market capitalization year to date. According to the corporation, the decline in market capitalization is being driven by macroeconomic reasons such as geopolitical uncertainty and the Federal Reserve's suggestion of a tightening of financial conditions.

The revenue number was the biggest ever for Coinbase, topping the $1.97 billion consensus projection, while the user count, which was also a record, reversed a previous slide that saw the company's user base decrease to 7.4 million in Q3. Despite a general increase in value in 2021, the main cryptocurrencies had a bad month in December, according to the research. Concerns over cryptocurrency's energy usage, as well as macroeconomic variables such as the growth of the COVID-19 omicron version, were blamed by investors for the year-end downturn.

Coinbase produced $840 million in earnings last quarter, more than double the previous quarter's profit but falling short of the $1.6 billion it made in the second quarter of last year. Revenues at the exchange increased to $2.5 billion in the fourth quarter of 2021, exceeding analysts' expectations of $2 billion. It had 3,730 workers by the end of 2021, more than three times the amount it had in 2020.

Lower "subscriptions and services revenues" than in the previous quarter, which, together with the aforementioned datapoint, suggests that Coinbase's top-line would fall dramatically in Q1 2022 compared to Q4 2021.

In a letter to shareholders, Coinbase warned that the year 2022 will continue to be unclear for the company.

"We approach 2022 with even more unknowns," the company warned, citing "global macroeconomic challenges" in addition to "unpredictable crypto asset values," increasing interest rates, and inflation. On the other hand, it stated that it sees growing bitcoin prospects and acceptance.

The outstanding results were undoubtedly fueled by record-high crypto prices in October and November, when Bitcoin nearly reached $70,000 and the frenetic trading that followed. Given the weak market that has defined 2022 thus far, they are unlikely to be replicated.

The Coinbase results also revealed that Ethereum's share of trade volume, which had previously surpassed Bitcoin, had dropped to 16 percent last quarter. Other assets, including Dogecoin, Shiba Inu, and others, saw their volume increase from 59% to 68%.

According to the company's results, over $200 million of Coinbase's income comes from non-trading methods such as staking and lending. While this represents less than 10% of Coinbase's total income, it indicates that the business is finally diversifying away from the trading fees on which it has long relied—and which many fear are under threat from commission-free platforms like Robinhood.