Coinbase Q3 net income jumps 66% as prediction markets gain traction

Coinbase Coinbase Global, Inc. (COIN) reported a sharp jump in third-quarter net income to $719 million, as its expanding prediction markets and derivatives businesses helped offset weaker spot trading activity, analysts said.

According to the exchange's earnings report released Thursday, the company generated $1.22 billion in total revenue, broadly flat from the previous quarter but down 35% year over year.

The company's net income rose 66% year on year to $719 million from $433 million in the same period last year. The results included a $715 million gain on crypto assets held for investment, compared with a $424 million gain in the year-ago quarter. 

The exchange's spot trading volume fell 8% quarter over quarter to $135 billion, though the platform continued to gain market share, according to the report.

Prediction markets gain traction

Notably, Coinbase's prediction markets business surpassed $200 million in annualized revenue, doubling from roughly $100 million in the previous quarter. 

"Prediction markets have been one of the fastest-growing products in Coinbase history, growing even through slower sports months driven by crypto contracts where we have a strong right to win," Coinbase CEO Brian Armstrong said in a Thursday statement.

Bernstein analysts wrote in a Friday research note that the growth in prediction markets and subscription and services revenue "helped offset the softer crypto trading activity." 

The analysts estimated that prediction markets and derivatives accounted for about 25% of the company's transaction revenue, equivalent to roughly 12% of its total revenue.

Coinbase's derivatives trading volume declined 7% quarter on quarter to roughly $986 billion, while the industry derivatives volumes declined by 11% quarter on quarter, according to Bernstein.

"Subscription and services revenue grew quarter over quarter and now represents nearly half of net revenue. Prediction markets are adding another revenue stream and are less correlated to crypto volatility," said Coinbase CFO Alesia Haas. "These businesses make Coinbase more diversified and resilient across market cycles."

Stablecoin momentum

Meanwhile, stablecoin-related revenue remained a key contributor to Coinbase's results. Its stablecoin revenue came in at $328 million, up 3% quarter on quarter. That figure included $21 million attributable to USDC held in corporate balances.

William Blair analysts said Thursday that stablecoins, particularly USDC, will revolutionize cross-border payments and "play a critical role in tokenized RWA settlement."

Both Bernstein and William Blair reiterated their Outperform ratings on Coinbase following the earnings release. Bernstein maintained its $250 price target on Coinbase's stock, while William Blair's valuation analysis suggested the stock could be worth roughly $240.

Coinbase's Nasdaq-listed shares closed down 1.07% at $160.59 on Thursday.