Crypto companies aren’t able to simply cruise on the ever-expanding bubble anymore. Last year was a gravy train, allowing anybody and everybody to win big on their crypto start-up or speculative token without requiring much by way of fundamental value. But 2022 is an entirely different story. Perhaps no company is more aware of this than Coinbase (NASDAQ:COIN). Both the company and COIN stock have been limping most of the year. Could a new shift in business model be what Coinbase needs to turn things around?
When it’s not regulators bullying Coinbase, it’s shareholders. The company faces a multitude of class-action lawsuits, the most recent opening up just this week. Obviously, the crypto winter is leaving a sour taste in investors’ mouths. Gripes about security, misleading information and unregistered security offerings are now turning into investor cash grabs, causing the company to throw money into defending itself.
All the investigations hampering Coinbase activity are not helping the situation, either. Specifically, the U.S. Securities and Exchange Commission (SEC) has COIN directly in its crosshairs, looking to potentially make an example out of the company as it lays down the law for the crypto space. Like the lawsuits, the SEC is concerned about the company’s security offerings and their legality. Further investigations also delve into Coinbase’s other products, like its staking program.
These factors are just more financial sinks and outside distractions for a company in fiscal decline. Coinbase already did not impress in the second quarter and investors are bracing themselves for similar disappointment in Q3. Now, though, Coinbase CEO Brian Armstrong may have an ace up his sleeve.
Coinbase Looks to Cut Costs, Up Subscriptions in Turnaround Plan
Coinbase’s revenue is in steep decline. In its last earnings report, the company saw a $1.1 billion net loss. The company massively missed the predicted loss per share of $2.39, instead posting a loss of $4.98. Overall, the report was another gut punch to COIN stock, which has been dropping since starting the year at around $251.
A massive downswing in trading volume drove Coinbase’s latest earnings miss. The company saw only $217 billion in trades, a 53% drop year-over-year (YOY). People just aren’t as willing to trade crypto during a bear market — something COIN stock investors are now reckoning with. However, the company has plans to circumvent this reality.
CEO Brian Armstrong is looking to shift Coinbase’s business model. Up to this point, the company’s main source of revenue has been trading fees. But these fees are dependent on the state of the market. With that in mind, Coinbase is considering a shift to a model that generates money regardless of whether crypto is bullish or bearish.
Armstrong says that, in the future, the company now plans to source at least 50% of its total revenue from subscription services rather than trading fees. To accomplish this, the CEO says Coinbase is investing heavily in new subscription services. The company launched its first subscriptions products back in 2013. They currently account for about 18% of revenue.
Armstrong is also considering moving beyond the scope of the U.S. market, expanding into global crypto trading. This will allow Coinbase to compete with its biggest competitor, Binance (BNB-USD). Finally, the CEO is cutting costs to boost revenue. Earlier this year, Coinbase rescinded offers made to all new hires. More recently, the company laid off 18% of its staff.
On the date of publication, Brenden Rearick did not hold (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.