Coinbase stock drops 10% following massive Q2 losses

LAGOS (CoinChapter.com) —  Coinbase shares dropped in extended trading today after the crypto exchange reported a loss of more than $1 billion in the second quarter, missing analysts’ revenue targets.

In detail, Coinbase’s stock declined by over 10% after news of its Q2 performance emerged. The crypto exchange reported a 65% decline in revenue in Q2 of 2022, its largest loss since listing on Nasdaq. At the time of publication, the crypto exchange shares are priced at $87.68.

In a letter addressed to investors, the crypto exchange blamed the loss on the recent “fast and furious” crypto downtrend. The company said revenue was around $808 million, down from $2.2 billion a year earlier.

“Q2 was a test of durability for crypto companies and a complex quarter overall. Dramatic market movements shifted user behavior and trading volume, which impacted transaction revenue, but also highlighted the strength of our risk management program. We are focusing on our top business priorities and more tightly managing expenses.“

Coinbase said.

Notably, the company’s second consecutive quarter recorded a significant loss. Furthermore, the crypto exchange transacting users dropped to nine million in Q2, a 2% decline from the previous quarter. Coinbase also predicted that its user numbers would continue to fall over the next three months.

Coinbase Chief Operating Officer Emilie Choi further declared that soft crypto market conditions are continuing into the third quarter. She indicated that core retail customers are “sitting on the sidelines” because of the downturn, hindering exchange recovery.

It Is Never As Bad As It Seems, Coinbase CEO Says

In his remark, Brian Armstrong, Coinbase’s CEO, urged customers to be calm. He explained that the loss was due to the market’s downtrend, which is the “cyclical nature of crypto.”

Armstrong pointed out that the company had survived previous downturns. He said:

“It seems scary. But it’s never as bad as it seems.”

Coinbase’s recent struggles have fueled concerns that it may be squandering its early lead in the cryptocurrency industry. This opinion became valid as competitors like Binance and FTX managed to expand during the recent market downturn.

As a result of the recent struggles, Coinbase laid off 18% of its staff (about 1,100 employees). Notably, the company’s success is largely tied to the fluctuations of the broader crypto market. For example, in Q2, almost 80% of its revenue came from charges when customers bought and sold digital assets on its platform.

To cut expenses and improve profit margins, the company also deployed a “pause, maintain and prioritize” strategy for product development. The prioritized products include Coinbase’s retail app, Coinbase prime, staking, Coinbase cloud, and other Web3 applications.

U.S. Securities And Exchange Commission Clamp Down

Additionally, the crypto exchange has also come under regulatory scrutiny. Last month, the Justice Department filed insider-trading charges against a former Coinbase employee.

In a related development, the Securities and Exchange Commission said that some of the digital coins listed on Coinbase’s exchange were securities. Therefore, the assets are subject to regulation like stocks or bonds.

The crypto exchange has since objected to the SEC charges. Coinbase said SEC sent a voluntary request for information on its listings and listing process. But it does not yet know if the inquiry will become a formal investigation.

“We have a zero-tolerance policy on front-running,” Choi said regarding the case involving alleged insider trading by a former Coinbase manager.