Executive Summary

* Strong Revenue Growth: Coinbase's revenue exceeded expectations in Q3 2023, driven by increased trading activity and rising asset prices. * Trading Dominance: Trading remains the largest source of revenue for Coinbase, although it is down from peak levels earlier in the year. * Deribit Contribution: The acquisition of derivatives exchange Deribit was a key driver of revenue growth. * Diversified Revenue Growth: Coinbase's subscriptions and services revenue experienced significant growth, particularly from stablecoins. * Derivatives Expansion: Coinbase is expanding its reach into the derivatives market, aiming to become an "everything exchange."

Detailed Financial Performance

Coinbase reported total revenue of $1.869 billion for Q3 2023, a 25% increase quarter-over-quarter and a 58% increase year-over-year. Net income was $433 million. These results exceeded analyst expectations, leading to a rise in Coinbase's stock price (COIN) in after-hours trading.

Revenue by Source

* Trading Revenue: $1 billion, up 37% quarter-over-quarter. However, this revenue is still significantly lower than levels seen earlier in the year. * Subscriptions and Services Revenue: $747 million, up 14% quarter-over-quarter. Stablecoin revenue accounted for $355 million, or approximately half of total subscriptions and services revenue. * Other Revenue: $68 million, up 26% quarter-over-quarter. Base, a layer-2 blockchain incubated by Coinbase, had a significant impact on this growth.

Trading Volume

Total trading volume was $295 billion, up 24% quarter-over-quarter. Retail trading volume was $59 billion, while institutional trading volume was $236 billion.

Expenses

Total operating expenses decreased by 9% to $1.388 billion. This decrease was largely due to a decrease in other operating expenses, which included $48 million related to a theft disclosed in May.

Outlook

Coinbase expects trading revenue in October to be approximately $385 million. They also expect subscriptions and services revenue in Q4 to be between $710 million and $790 million. The company expects headcount growth to be slower in Q4 compared to Q3.

Conclusion

Coinbase delivered a strong performance in Q3 2023, driven by growth in trading volumes and revenue from trading, subscriptions, and services. The company is expanding its reach into the derivatives market and investing in new initiatives like Base. However, Coinbase still faces challenges, including increased competition and an uncertain regulatory environment.