Coinbase Q1 earnings are its best in a while

Coinbase announced quarterly earnings on Thursday, and for the first time in over a year investors didn’t have to cover their eyes in horror. The company beat revenue estimates while showing it is capable of controlling costs, and, while it posted a modest loss for Q1, there are signs it could post a positive EBITDA—an important measure of current profitability—for the second quarter.

All of this caused Coinbase shares to jump 8% in after-hours trading as investors signaled they think the company may be turning the page after a ghastly 2022. This is good news not just for the company but for the crypto industry as Coinbase is its flagship company and has an outsize role in setting the narrative for where things are going.

And yet. While Coinbase’s trajectory is encouraging, if you squint, you will see things in the earnings to give you pause. The primary one for me is that the main driver of its revenue growth is “subscription and services,” which accounted for nearly half of the money it pulled in.

Ordinarily, “subscriptions and services” means a recurring, reliable stream of income of the sort analysts love—think of Apple’s monthly bill for TV, cloud, and whatever—but the term is a little misleading when it comes to Coinbase. That’s because the lion’s share of its “services” revenue consists of interest it collects from customers’ cash holdings and USDC, the stablecoin it jointly administers with Circle. The surge in revenue here isn’t the result of some great new business line, but more like a windfall that Coinbase is collecting as a result of the Fed’s recent rate hikes.

Still, revenue is revenue, and that interest income pouring into Coinbase will keep flowing for the foreseeable future. The windfall also comes at a time the company desperately needs it. That’s because Coinbase’s Q1 transaction revenue, which has long been the bread and butter of its business, was underwhelming and is unlikely to improve until U.S. regulators cease their assault on the crypto industry.

If you want to stay optimistic, the good news is that Coinbase is digging in for a make-or-break battle with the regulators in a smart way. Brian Armstrong, the company’s CEO, has stopped picking culture war fights with the likes of the New York Times and is instead focused on protecting his company and the industry at an existential moment. He also appears to be making Coinbase’s crypto business his top priority rather than expending his attention and gobs of money on Hollywood vanity projects.

All this to say, Coinbase is far from out of the woods but its financial performance is improving, and the company is more focused than it’s been in years. After a year from hell, the company’s investors will be happy to take that.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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