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Q423 Earnings review, part III
Today I bring the third and final installment of comments on the 2023 results presentations, which combine Q4 and the overall annual performance. These presentations tend to be very positive events for our portfolio, as they showcase to the market the great cash generation capability of our companies, and moreover, they often come with generous returns to the shareholder. Specifically, in this publication, we will discuss the results of the following companies:
Coinbase
CVR Partners
Georgia Capital
Valaris
Here we go.
Coinbase
Coinbase has managed to turn around its finances this quarter, culminating the efforts of 2023 in spending discipline and capitalizing on the new bullish crypto cycle that seems to be starting. Transaction revenues increased by 83% QoQ to $529M, driven by cryptocurrency price increases and volatility, and subscription and service revenues (much more stable) grew by 12% QoQ to $375M, for a total of $905M (for the entire year, despite a 2% drop in top-line, subscription services increased by 78% to $1.4B). The net profit for the year has been $95M ($273M in Q4), with an annual dilution of 1.6%.
Throughout the year, they have prioritized efficiency and discipline, reducing costs by 45% YoY (by -$2.6 billion), with a special focus on technology and development, as well as SG&A (Selling, General, and Administrative expenses). The balance sheet improved significantly, with a reduction in debt of $413 million and an increase in resources of $217 million YoY, ending at $5.7 billion. The assets stored on the platform surpassed $200 billion.
It's very interesting to observe how they have focused on increasing the share of subscription and service revenues, which are much more stable and predictable, to reduce the cyclicality of their business, enabling them to continue financing their international expansion and launch of new products.
Many of the questions during the conference call focused on the recently approved Bitcoin ETFs, as it may seem at first glance that they pose a threat to Coinbase, insofar as they could cannibalize part of its business; their view is the opposite, and they expect a positive contribution, both from direct impact (they are custodians of 8 out of the 11 ETFs, which implies in terms of custody and operational fees) and indirect, by establishing BTC and cryptocurrencies as their own asset class, attracting the interest of new investors, both institutional and retail. In fact, these ETFs have seen unprecedented success (we've been closely monitoring it in our weekly macroeconomic summaries), becoming the second-largest in the commodities category, surpassing silver, and second only to gold.
The current fundamentals do not yet reflect the cash generation capability of the business in a bullish cycle, like the one that seems to be on the horizon: in the following graph, we can see the retail trading volume of the platform over the last 4 years, with 2021 standing out (which should be equivalent to 2025), with figures surpassing those of Q423 by more than 5 times (in fact, if history repeats itself, we should see even higher volumes this time, as adoption is now greater and includes institutional investors).
For Q124, the results should still be sequentially better, with a subscription revenue guidance of $410M-$480M and, so far, $320M recorded in transaction revenue (extrapolating, around $1B-$1.1B in total revenue), and expenses of $600M-$650M. If, as it seems, we are at the beginning of a bullish cycle in the cryptocurrency market, Coinbase will be one of the main beneficiaries, and the improvement in fundamentals (in addition to the multiple expansion due to media focus) in the coming quarters should be spectacular.
CVR Partners
CVR Partners, the American producer of nitrogen fertilizers, reported another solid quarter, although seasonally it is the second weakest of the year, yet it provides valuable information for the spring planting season.
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