When Coinbase published its second-quarter earnings on Thursday, the results were ho-hum at best: a narrow miss on revenue and a decline in trading volume, which led the company’s stock—which has been on a tear in recent months—to drop by around 15%. The market’s focus on typical earnings metrics, though, mean the news coverage largely overlooked three very significant one-off numbers that matter a lot to Coinbase’s short- and long-term future.
The first of those numbers is $1.5 billion. That figure reflects what Coinbase described as “pretax gains on strategic investments—which included an unrealized gain on our investment in Circle.” Translation: Coinbase hit the jackpot when Circle, its partner on the fast-growing USDC stablecoin, went public in early June and saw the value of its shares soar soon after.
Coinbase is presumably subject to the same six-month lockup as other Circle shareholders, and it’s unclear when the company might cash out its windfall or if those shares will still be worth as much when it decides to do so. But even if Circle stock does decline, it’s a safe bet that Coinbase will still be sitting on a large and liquid investment it can cash out during a downturn, or use to fuel its impressive acquisition spree.
It’s also important to recognize that Circle is just one of many crypto firms in which Coinbase has an equity stake. As the crypto market continues to mature, other startups will go public, and it’s a good bet that Coinbase will be in a position to collect when they do. If this proves to be the case, the $1.5 billion that the company reported as a one-time item will actually be replicated to greater or lesser degrees in upcoming quarters.
The second one-time number Coinbase reported on Thursday is part of a far less positive story. That would be the “$307 million in expenses related to the data theft incident disclosed in May.”
The “incident” in question is the calamitous hacking episode that saw criminals bribe customer service agents in India, and then use the personal data they garnered to pose as Coinbase employees and defraud customers. In response, Coinbase pledged to make good any customer who lost money in the scheme and to put a $20 million bounty on the heads of those responsible.
If the fallout from the episode only costs $307 million, Coinbase can count that as a win. But that’s a big if in light of the gaggle of class action lawyers and state regulators lining up to extract a payout from the company over the data breach. Then there is the reputational damage that goes with Coinbase failing to see how outsourcing sensitive customer data to dirt-cheap agents in India posed a security risk. For now, though, the company appears to have weathered the PR storm, and its announcement of a new customer service “Center of Excellence” in North Carolina could help to smooth out remaining mistrust.
Finally, there is a third big one-off number tucked into Thursday’s earnings report: “a $362 million pretax gain on our crypto investment portfolio (largely unrealized).” This reflects a pair of significant recent developments. The first is the obvious run-up in crypto asset prices, which is fattening Coinbase’s treasury holdings. The other is the recent change in accounting rules that allows companies to record crypto gains as they accrue. While companies accumulating crypto on their balance sheet is generally a dicey corporate finance strategy, it is fortunately only a small part of Coinbase’s operations, and for now, the gains are very real and help to strengthen its already strong fundamentals.
While one-off numbers are typically just that—temporary noise that shouldn’t be mistaken for a signal of a company’s broader performance—they can also represent something more. That is the case with Coinbase’s Q2 earnings, where items like its massive Circle windfall arguably matter more than the usual quarter-to-quarter revenue and trading fluctuations.
