Coinbase's $719M Q3 Profit Rests on a $715M Crypto Valuation Gain

Coinbase reported net income of $719 million for the third quarter after the US close on Thursday, and about $715 million of it came from marking up crypto the company holds for investment. Adjusted net income, which leaves that gain out, was $78 million. Revenue of $1.22 billion was flat against the second quarter and 35% lower than a year earlier. The company led its release with prediction markets, where annualized revenue passed $200 million. Shares had closed at $160.59, down 1.07%, before the figures landed.

The gain that carries the quarter

Net income rose 66% from $433 million a year earlier, and the composition barely changed: that quarter carried a $424 million gain on the same kind of holdings. These are accounting entries on assets Coinbase has not sold, and they track the price of what it owns. Take them out and the picture is narrower. Adjusted EBITDA came in at $332.9 million, up 60% from $207.8 million in the second quarter, and the fifteenth consecutive quarter in positive territory.

Published expectations for the top line do not agree with each other. StockStory gives S&P Global consensus at $1.21 billion, which makes the quarter a slight beat. Benzinga reported Street consensus at $1.230 billion against revenue of $1.216 billion, which makes it a miss. The two do not reconcile, and we could not establish which estimate set either outlet drew on. Per-share forecasts were no steadier: a loss of 15 cents in the Zacks figure Decrypt cited, a loss of six cents in the consensus Benzinga carried, with StockStory's 10 cents sitting between them.

Prediction markets at a $200 million run rate

Prediction markets are the line Coinbase chose to put in its headline. Annualized revenue passed $200 million, roughly double the $100 million run rate of the previous quarter, and the company put compound quarterly growth since launch at 82%. Bernstein's reading is that prediction markets and derivatives together make up about a quarter of transaction revenue and about 12% of the total. An event contract pays a fixed amount if a stated outcome occurs and nothing if it does not; CryptoJazz covered the same instruments reaching consumer wallet users at two cents a contract last week.

"Prediction markets have been one of the fastest-growing products in Coinbase history," chief executive Brian Armstrong said.

Trading shrank, subscriptions did not

Transaction revenue was $590 million, down 1% on the quarter and 44% on the year, beating the roughly $527 million analysts had expected. Spot volume fell 8% to $135 billion. Derivatives volume fell about 7% to roughly $986 billion, against an 11% drop industry-wide on Bernstein's count, and Coinbase's share of global trading volume rose to 10.7%, a fourth straight quarterly gain. Subscription and services revenue went the other way, up 3% to $570 million and just under half of net revenue.

Stablecoins are the biggest part of that line. Decrypt put stablecoin revenue at $307 million inside it. The Block gave $328 million including $21 million earned on USDC sitting in Coinbase's own corporate balances, which accounts for the gap. Average USDC held across Coinbase products reached $22 billion, up 49% in a year and about 30% of the average USDC market cap. The cost of that distribution sits with the issuer, which disclosed $819 million paid out to partners in the first half.

Three readings of one evening

Coinbase said fourth-quarter transaction revenue stood at $165 million through 25 October and guided subscription and services revenue for the quarter to between $550 million and $630 million. Full-year adjusted expense guidance came down $100 million at the midpoint, to a range of $4.15 billion to $4.30 billion. What the market made of the quarter is not legible from the accounts read here. Decrypt described the shares as little changed after hours. Benzinga had them up 1.2% at $162.62, and StockStory reported a fall of about 2% to $156.86 immediately after the release. Three readings, one evening, and no two of them agree. The stock sits more than 55% below its 52-week high of $361.40. Whether the next quarter reads as cleanly depends on prices Coinbase does not set.