Coinbase (NASDAQ:COIN) stock is down 20% today after the cryptocurrency exchange issued disappointing first-quarter earnings.
Investors are disappointed after Coinbase revenue missed estimates and the executive team warned that trading volume in Q2 will be even lower than in Q1. Adding to the pain is the fact that these results come amid a broader downturn in cryptocurrencies.
Bitcoin (BTC-USD) is down more than 50% from its all-time high. Earlier this week, the price of BTC fell below the key level of $30,000, heightening concerns for investors.
At its current price near $55, COIN stock has fallen more than 80% since coming public.
What Happened With COIN Stock
Coinbase’s first-quarter revenue came in at $1.17 billion, which was below the $1.48 billion in revenue that analysts had expected. Perhaps worse, the crypto exchange reported that its monthly transacting users fell to 9.2 million in Q1, below an estimate of 9.5 million.
A high spend rate hurt Coinbase’s financials during the first quarter. The company said that its operating expenses amounted to $1.72 billion, which surpassed the amount of revenue it generated. Coinbase said that its general and administrative expenses were $414 million, up 39% from Q4.
Coinbase attributed the rise to higher expenses related to full-time and contract employees.
Why It Matters
Coinbase’s underperformance mirrors the current pullback and volatility in the cryptocurrency market. It earns the bulk of its revenue from trading fees, and if the number of people using and transacting on its platform continues to erode, it will likely result in a continued decline in COIN stock.
However, Coinbase does have a plan to address this reality. The company is diversifying to reduce its reliance on trading fees.
Coinbase has created a staking product that management says is gaining traction with users. Additionally, Coinbase plans to launch cryptocurrency derivatives, and, last week, it opened its new marketplace for non-fungible tokens (NFTs). On a conference call with analysts, management acknowledged that uptake of the NFT marketplace has been slow.
What’s Next for Coinbase
Things are going from bad to worse for COIN stock. The cryptocurrency exchange’s Q1 results have not inspired confidence among analysts and investors, and play into the narrative that digital coins and tokens are in the midst of a sharp correction.
Going forward, Coinbase will have to continue diversifying its business model and produce more consistent earnings that match or exceed Wall Street expectations. Until that happens, expect shares of Coinbase to continue falling.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.