Cryptocurrency exchange Coinbase Global Inc. beat projections as it delivered its fourth-quarter earnings and revenue today, but its user numbers fell short of estimates, sending its stock down in after-hours trading.

In a letter to shareholders, the company reported a loss before certain costs such as stock compensation of $2.46 per share, slightly better than the predicted loss of $2.55 that analysts were expecting. Revenue for the period plunged 75% from a year earlier, to $629 million, but above the $590 million forecast. All told, Coinbase delivered a net loss of $557 million for the period, one year after it generated a net income of $840 million, when crypto prices were at all-time highs.

“In Q4, we improved net revenue, by continuing to grow Subscription & Services revenue, we gained trading market share, and we took key steps to reduce our expense base and position the company to improve adjusted EBITDA in 2023,” Coinbase Chief Financial Officer Aleisa Haas said in a statement.

Coinbase’s losses were compounded by the news that its user base continued to shrink during the quarter. It reported having 8.3 million monthly transacting users at the end of January, down from 8.5 million at the end of the prior period. Analysts were targeting 8.4 million MTUs.

Meanwhile, Coinbase said its trading volume dropped 9% from the previous quarter to $145 billion, while transaction revenue fell 12%, to $322 million, below the $327 million consensus estimate.

Looking to the first quarter of 2023, the company forecast subscription and services revenue of $300 million to $325 million, along with restructuring expenses of about $150 million. The company has prioritized diversifying its revenue away from simply taking trading fees, and subscriptions and services are a big part of that. It includes products such as Staking, Earn and Custody that pulled in just over $200 million in revenue during the quarter.

Coinbase has been hit hard by the so-called “crypto winter,” when cryptocurrency prices were decimated over the last year, and it has been forced to announce two rounds of layoffs since June. Last month it cut 20% of its staff, having reduced its workforce by 18% before.

The good news is that crypto has experienced a revival this year, with the most popular cryptocurrency bitcoin rising more than 48%. As a result, Coinbase’s stock had risen more than 75% in the year to date. However, it declined almost 5% in today’s regular session, before dropping less than a percentage point after-hours.

Analyst Ray Wang of Constellation Research Inc. said Coinbase’s latest report shows that the company has at least stabilized after seeing its revenue dip significantly during the crypto winter. However, he noted that its revenue is still at only 42% of what it was during its 2021 high point.

“What’s good to see is the minimal erosion of MTUs,” Wang added. “The cost-cutting measures in place and subscription revenue look to be gaining traction, and regulations may benefit Coinbase in the long run. Overall, it was a good performance amid bad market conditions, with trading volume growing to $830 billion for the year, versus $193 billion in 2020. The numbers stand out against a really bad crypto winter and overall macro market.”

Coinbase’s emergent businesses are still under scrutiny from the Securities and Exchange Commission and could yet be affected by actions that govern certain kinds of cryptocurrency tokens and services as securities. Coinbase Chief Executive Brian Armstrong has vowed to fight any such action in court, but a rival exchange platform, Kraken, was recently forced to stop offering staking services after reaching a settlement with the SEC over charges that its platform sold unregistered securities.

Crypto staking involves users locking their crypto assets within a blockchain validator smart contract, which helps verify the accuracy of transactions on the network. Users agree not to withdraw their tokens for a certain period of time, and can earn additional tokens by doing so, as a reward for effectively locking up those assets.

It’s not yet clear if Coinbase will be forced to withdraw its staking services, as Kraken was, but in an interview with CNBC, Haas insisted that the product “is not a security.” She added that while revenue earned from staking was less than 3% of the company’s total, it remains an important part of the new ecosystem Coinbase is planning to grow.

Photo: Coinbase