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Coinbase Faces Profitability Crossroads as Q1 Miss and Q2 Caution Weigh on Shares

Julian CruzThursday, May 8, 2025 5:06 pm ET

21min read

Coinbase Global Inc. (COIN) entered a critical phase this quarter as its shares slipped 3.5% in after-hours trading following the release of Q1 2025 earnings that missed revenue and profit expectations. While the crypto exchange’s $2 billion in revenue marked a 25% year-over-year increase, its net income plummeted to $66 million from $1.2 billion a year earlier, underscoring persistent margin pressures. The Q2 outlook, which narrowed subscription revenue guidance to $600 million–$680 million, further fueled investor skepticism about the company’s ability to stabilize profitability amid a volatile market.

Q1 Performance: Growth Stalls Against Expectations
The quarter highlighted the precarious balance Coinbase must strike between scaling its business and managing costs. While its subscription and services revenue—a key focus for the company’s recurring revenue strategy—grew 37% to $698.1 million, this segment now faces headwinds. The EPS drop to $0.24 from $4.40 year-over-year reflected significant operational challenges, including rising expenses and declining trading volumes. Institutional adoption, a pillar of Coinbase’s long-term strategy, saw only modest gains, with institutional revenue increasing just 5% year-over-year to $173.5 million.

Analysts had anticipated $2.1 billion in revenue and $0.46 in EPS, making the miss particularly stark. The decline in net income was exacerbated by a one-time $180 million gain in Q1 2024 from its acquisition of Paradigm, which inflated prior-year results. Excluding such anomalies, the trajectory remains concerning: gross profit margins compressed to 54% from 62% in Q1 2024, signaling heightened competition and pricing pressures.

Q2 Outlook: Cautious Guidance Amid Uncertainty
The Q2 subscription revenue guidance of $600 million–$680 million, down from the $698 million achieved in Q1, reflects cautious management. This range implies a potential year-over-year growth contraction to as low as 11%, sharply below the 37% pace of early 2025. Coinbase CFO Arianne Denise cited macroeconomic “volatility” as a key risk, though competitors like Binance have historically capitalized on such uncertainty to lure users with lower fees.

The full-year 2025 adjusted EBITDA target of $776 million–$783 million suggests management is prioritizing cost discipline, but this remains a modest 0.4% increase from 2024’s $778 million. With operating expenses rising 12% year-over-year in Q1, the path to EBITDA stability remains unproven.

Market Reaction: The Deribit Acquisition’s Double-Edged Sword
The stock’s post-earnings dip to $200—after climbing to a session high of $207—revealed investor skepticism toward the $2.9 billion acquisition of Deribit, a move aimed at boosting institutional trading dominance. While Deribit’s derivatives platform could unlock new revenue streams, its $2.9 billion price tag (8x revenue) raises concerns about dilution and execution risk. Analysts noted that Binance’s aggressive pricing and regulatory advantages in key markets, such as the U.S., could limit the deal’s strategic impact.

Risks and the Road Ahead
Coinbase’s survival hinges on three variables: margin stabilization, institutional adoption acceleration, and execution of the Deribit acquisition. The company’s Q2 guidance implies it may be scaling back growth investments to prioritize profitability—a shift that could alienate retail users who drive transaction volumes. Meanwhile, Binance’s $1.5 billion fund for crypto startups and its dominance in over 100 markets threaten to erode Coinbase’s market share.

The stock’s ability to hold above $200—a key psychological threshold—will depend on whether the Deribit deal can deliver synergies, such as cross-selling Deribit’s derivatives to Coinbase’s 100 million users. Without meaningful margin expansion, the $66 million net income in Q1 suggests that even $2 billion in annual revenue may not be sufficient to satisfy public market expectations.

Conclusion
Coinbase’s Q1 results and Q2 guidance reveal a company at a crossroads. While its subscription revenue growth and Deribit acquisition signal strategic ambition, the 87% year-over-year net income decline and cautious guidance underscore execution risks. With a market cap of ~$10 billion as of Q1, the stock trades at roughly 5x the midpoint of its 2025 EBITDA guidance—a valuation that assumes a turnaround in profitability and margin recovery.

Investors must weigh whether the $2.9 billion Deribit bet can offset near-term pressures. If institutional revenue growth accelerates beyond its current 5% pace and margins stabilize above 50%, Coinbase could regain momentum. However, in a crypto market where Binance controls ~50% of global spot trading volume, the path to sustained profitability remains narrow. For now, the stock’s performance hinges on whether management can turn its recurring revenue strategy into a profit engine—or if it will remain a volatile bet on crypto’s broader recovery.

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