Coinbase (COIN.US) Q2 Report: "Dual-Edged Sword" - Stablecoin Investment Income Supports $14 Billion Net Profit; Trading Weakness Leads to Revenue Miss and Stock Price Drop

We have learned that the largest cryptocurrency exchange in the United States, Coinbase (COIN.US), has seen its stock price plummet sharply after releasing its latest financial report. The reason is that its second-quarter revenue did not meet analysts' expectations. Although the company's subscription service revenue has grown slightly, it has failed to offset the negative impact of a decline in trading volume.

The company's financial report shows that although revenue reached $1.5 billion, a 3.3% increase over the same period last year, it was still lower than the market's expectations of $15.9 billion and much lower than the first-quarter level of $20 billion. However, thanks to $15 billion in investment income (including unrealized gains from investments in Circle (CRCL.US)) and $362 million in cryptocurrency asset investment portfolio income, the company's net profit jumped to $14.3 billion (per share $5.14) from last year's same period of $36.13 million (per share $0.14).

According to our understanding, under the agreement with Circle, Coinbase can receive 100% of the profits from all USDC assets on the platform and approximately 50% of other USDC-related income.

Breaking down by business, retail trading volume grew 16% year-on-year to $43 billion, but fell short of analysts' expectations of $48.5 billion; subscription service revenue, including stablecoin, collateral services, interest income, and custody services, grew 9% year-on-year to $65.58 million, falling short of the expected $70.59 million; and stablecoin business revenue reached $33.25 million, basically in line with the expected $33.32 million, a 38% increase year-on-year and a 12% increase over the previous quarter.

Coinbase said in its letter to shareholders that "in the background of global cryptocurrency market value remaining stable, our spot trading volume has declined in both the US and global markets."

Analysts point out that after the market's frenzy in the first quarter, the second-quarter market trend is expected to weaken. In the first quarter, investors were enthusiastic about the Trump administration's promise to create a more favorable regulatory environment for the cryptocurrency industry. As the second quarter saw the US government shift its policy focus to tariff issues, retail investors slowed down their trading activity on centralized exchanges, while cryptocurrency ETF funds and cryptocurrency management companies' buying behavior continued to support prices.

Needham & Company senior analyst John Todaro said: "The main reason for missing revenue expectations is that retail trading volume has fallen significantly below expectations."

After the financial report was released, the stock price dropped sharply on Friday morning. However, the company's cumulative increase in value this year reached 52%, and it set a new historical closing high of $419.78 on July 18. In May, Coinbase also became the first cryptocurrency company to be listed on the S&P 500 index.

To reduce its reliance on cryptocurrency trading volume for revenue, the company's co-founder and CEO Brian Armstrong is actively expanding into new business areas. The company is accelerating its diversified business layout and is currently developing and testing functions for traditional stocks, prediction markets, foreign exchange, government bonds, and commodities, among other assets.

Coinbase Chief Financial Officer Alesia Haas said in an interview: "We have always believed that all asset categories will eventually be blockchain-ized. Current technology conditions are now mature, regulatory frameworks are becoming clearer, and the industry is at a critical turning point."

Haas noted that stock trading services may be provided through partnerships with brokers or by linking stocks to blockchain, but emphasized: "This is an engineering project across quarters, and it's too early to discuss commercial benefits."

She also revealed that the company will continue to push forward its acquisition strategy after acquiring derivatives options exchange Deribit this year.

Additionally, Haas pointed out that the company has already accounted for most of the relevant expenses related to the security event disclosed in May. In the second quarter, the company recorded an expense of $307 million for this event.