The Big Story

What to watch in Coinbase's earnings

Coinbase is set to release its first-quarter earnings today ahead of its planned direct listing on April 14.

Investors will be watching the numbers closely to see if the cryptocurrency exchange's financials remain strong. Analysts are expecting a blockbuster float of Coinbase shares. The only thing that could slow it down is any weakness in Coinbase's fundamentals.

Coinbase is a rarity, with growth and profits. Many tech companies are growing fast but losing money. Coinbase turned profitable in 2020. As such, investors will be watching both the top and bottom lines.

• Coinbase reported $1.1 billion in 2020 revenue, up 136% from $483 million in 2019. Net income was $322 million in 2020, compared to a loss of $30 million in 2019.
• Another number to watch is trading volume. Coinbase's institutional business outgrew its retail business in 2020. In the fourth quarter, institutions traded $57 billion, up 216% from $18 billion in the first quarter, compared to a 166% increase in retail trading volume from $12 billion to $32 billion in the same period.

Diversification is key. The crypto boom has been good for Coinbase. But if crypto prices fall, so could its trading revenue.

• Trading represented 96% of Coinbase's net revenue in 2020.
• Coinbase's other businesses include ecommerce tools for retailers to accept crypto payments, a debit card and custody services.
• It also is building out saving and borrowing products. Anything that a financial institution could help you do with a fiat dollar, Coinbase wants to help you do with crypto.
• Subscription products and services don't produce a "significant portion of net revenue," Coinbase said in a filing, but the company saw a 126% annual growth there in 2020. Keep an eye on that growth rate for the first quarter.

The thing is, people are already swapping shares of Coinbase. Shares of private companies can trade on what are known as secondary markets. Before Facebook went public in 2012, secondary trades gave some indication of the appetite for shares.

• Coinbase shares sold at an average price of $343.58 in the first quarter of 2021, the company reported in its most recent S-1 filing.
• That would imply the whole company is worth $67 billion.

This could be crypto's Netscape moment. Even people who are leery of holding Bitcoin or ether might take a flier on the company.

• Coinbase "gives some centralization to the market that is decidedly decentralized," says Mel Brue, senior analyst at Moor Insights & Strategy.
• "What Netscape did for the internet in 1995 is what Coinbase will do for crypto and blockchain in 2021," said Roger Lee, a general partner at Coinbase investor Battery Ventures. "The internet was very opaque and a very abstract concept to most people in the mid-'90s. Netscape created a lens through which to interact with it."

A lot is riding on Coinbase, in other words. Despite the eye-popping jumps in cryptocurrency prices, there's more to the underlying technology. Applications built on blockchains show a lot of promise. If Coinbase does well, it could be just the beginning for crypto-related offerings.

Protocol's guide to the Coinbase direct listing has the latest updates.

— Tomio Geron

Overheard

• "The percent of startups I'm seeing that have a debit and/or credit card on their roadmap ... has absolutely exploded. Adding all these up means each of us will carry around 25+ cards :)" —DoorDash's Gokul Rajaram, who previously worked at Square, Facebook and Google.
• "In order to protect our currency sovereignty and legal currency status, we have to plan ahead." —Mu Changchun, of the People's Bank of China, on the digital yuan.
• "We are seeing the separation between the consumers who are back on their feet and those who aren't." —Satyan Merchant, head of auto finance at TransUnion.

3 Questions With...

Charley Ma, general manager of fintech, Alloy

Alloy provides identity management software to banks and financial-technology startups.

What fintech trend do you find most exciting?

There's been a lot more regulatory attention focused just broadly around fintech. I think that's going to make or break a ton of interesting companies over the next five to 10 years.

What is the fintech trend that you're most worried about?

How do you make sure that you build a transparent and accessible system for the broad swath of America? As you continue to reduce friction, as you make it easier to interact with financial services, what are the sort of second- or third-order effects, particularly for underbanked segments, in how they're going to use your products? How do you think about education? [That's] an interesting problem that a lot more people are now starting to think about.

What has been your biggest professional blunder?

People who I passed on who in retrospect would have probably been awesome for the company. On the flip side were people who weren't a great fit for the company, but we kept on longer.

Need to Know

• Five banks and three credit unions test real-time payments. The northern California institutions are testing the Federal Reserve's FedNow program, which is scheduled to be fully implemented by 2023.
• Coinbase's independent directors are very close to Coinbase. Fred Ehrsam is a Coinbase co-founder who controls 8.9% of total voting power while Union Square Ventures' Fred Wilson has 8.1%.
• SPACs are underwater. A glut of SPACs is leading to many trading below their initial offering prices.
• Winklevii's BTC plans. The Winklevoss twins detail their intentions to turn their Bitcoin fund into an ETF.
• Knotel's co-founder departs. Amol Sarva blames Newmark, a commercial real estate brokerage which bought the co-working space provider's assets. The WeWork competitor had previously filed for bankruptcy.
• What's next for crypto? The Boston Fed's Jim Cunha talks crypto, identity and central bank digital currencies.

Data Point

70.3 billion

That's the number of real-time payments processed globally in 2020, an increase of 41% from 2019, according to ACI Worldwide. Less than 2 billion of these were in North America, a sign of how the region is lagging the rest of the world.