Is Coinbase $3 Billion Debt A Cause For Concern?

Blockchain. Pixabay Image

In this article, you will find various statistics related to the debt of Coinbase Global (NASDAQ: COIN).

Specifically, we will cover Coinbase’s total debt, net debt, debt leverage, etc.

In addition, we also look at the company’s debt due amount, liquidity, and credit rating.

Let’s move on!

Please use the table of contents to navigate this article.

Total Debt

Coinbase-total-debt

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As of fiscal 3Q 2023, Coinbase’s total debt reached US$3.1 billion, down 9% over the same quarter a year ago.

Coinbase’s total debt of US$3.1B in the latest quarter comprised entirely of long-term debt.

Around US$1.4B is due on June 1, 2026, with the remaining amount to be paid in 2028 and 2031.

Investors are worried that Coinbase will not be able to make the payment when the debt comes due in 2026.

Therefore, does Coinbase have a debt problem?

Let’s find out.

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Total Debt With Leases Included

Coinbase-total-debt-inclusive-of-leases

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With leases included, Coinbase’s total debt has only increased marginally, as shown in the chart above.

Therefore, Coinbase has relatively small lease liabilities.

Again, is Coinbase’s US$3.1 billion debt a cause for concern?

Can the company make the payments when they come due?

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Available Cash

Coinbase-available-cash

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As of 3Q 2023, Coinbase held US$5.5 billion in cash, roughly in line with the quarter a year ago.

Of this amount, US$5.1 billion was cash and cash equivalents; the rest was restricted cash and USD Coins (USDC).

Investors interested in the statistics of Coinbase’s cash flow and cash on hand may visit this page: Coinbase Cash On Hand And Free Cash Flow.

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Total Debt Less Available Cash

Coinbase-net-debt

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After taking into account the available cash, Coinbase’s net debt amounted to -US$2.4 billion as of 3Q 2023, suggesting that the company held more cash than debt.

In addition, Coinbase has had more available cash than total debt, resulting in a consistently negative net debt, as shown in the chart above.

Therefore, Coinbase could settle its total debt with its available cash.

In short, the debt of US$3.1 billion held by Coinbase is unlikely to pose a significant risk to the company’s financial health.

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Debt To Equity Ratio

Coinbase-debt-to-equity-ratio

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Coinbase’s total debt represents only 52% of its equity in fiscal 3Q 2023, down significantly over the quarter a year ago.

Therefore, Coinbase had a debt-to-equity ratio of 0.52X, implying a much bigger equity than its total debt.

With a ratio of just 0.52X, Coinbase’s debt leverage was minor.

Historically, Coinbase has maintained a debt-to-equity ratio of less than 1.0X, indicating a cautious approach to borrowing.

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Total Debt Vs Revenue

Coinbase-debt-vs-revenue

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Coinbase used to have much higher revenue but sales have considerably declined in the post-pandemic era, as shown in the chart above.

Since the pandemic, Coinbase’s revenue has decreased to a level lower than its total debt, creating a challenging financial situation for the company.

This decrease in revenue can be attributed to the pandemic’s impact on the global economy and the fluctuations in the cryptocurrency market.

Coinbase’s declining revenue is concerning as it may negatively impact the company’s financial health, resulting in difficulty paying off its debts.

The good news is that Coinbase’s total debt remained relatively stable, indicating the company’s careful approach to taking on more debt.

By avoiding excessive borrowing, Coinbase will likely have a more manageable and sustainable financial situation in the long run.

This responsible financial strategy could also help Coinbase build trust among its stakeholders, including investors, customers, and regulators.

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Debt Margin

Coinbase-debt-to-revenue-ratio

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The chart above shows that Coinbase’s rising debt margin is unfavorable for the company.

A debt margin exceeding 100% indicates a much higher debt figure than revenue.

Despite stagnant total debt, Coinbase’s debt margin is rising due to declining sales.

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Capital Structure

Coinbase-debt-to-asset-ratio

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Coinbase’s total debt made up about 32.4% of its total assets as of 3Q 2023.

Compared to the ratio a year ago, the latest result was slightly lower, indicating a decreasing debt level with respect to total assets.

The debt ratio of 32% implies that only around one-third of Coinbase’s assets are in the form of debt and is relatively modest, in my opinion.

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Debt And Other Payments Due

Coinbase’s debt and other payments due data are obtained from the 3Q 2023 quarterly report dated 30 Sept 2023.

Debt And Other Payments	Amounts Due (US$ Millions)
	Next 12 Months	Total
Operating Leases	$12.5	$18.3
Non-Cancelable Purchase Obligations	$272.8	$558.9
2026 Convertible Notes
Interest	$6.8	$20.0
Principal	$-	$1,373.0
2028 Senior Notes
Interest	$33.8	$185.6
Principal	$-	$1,000.0
2031 Senior Notes
Interest	$26.7	$227.2
Principal	$-	$737.5
Other	$19.7	$19.7
Total	$372.3	$4,140.2

The table above shows Coinbase’s debt and other payments due within the next 12 months as of September 30, 2023.

Apart from the debt, Coinbase has other payments that come due, such as leases and committed purchase obligations.

On a consolidated basis, Coinbase’s total payments due in the next 12 months amounted to US$372.3 million as of 3Q 2023, as shown in the table above.

For the total amount, Coinbase owed as much as US$4.1 billion as of 3Q 2023.

Nevertheless, can Coinbase afford the payments due in the next 12 months?

We will find out in the next discussion.

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Sources Of Liquidity

Coinbase’s liquidity data are obtained from the 3Q 2023 quarterly report dated 30 Sept 2023.

Sources Of Liquidity	US$ Millions
	Committed Capacity	Available Capacity
Company Cash
Cash & Cash Equivalents	–	$5,100.8
Restricted Cash	–	$26.3
USD Coins (USDC)	–	$400.8
Cash Flow
Consolidated Operating Cash Flow	–	$915.7 (estimated)
Total Liquidity
Total	–	$6,443.6

Coinbase’s sources of liquidity include cash, restricted cash, USDC, and cash provided by operating activities.

USDC definition can be found in this post: Coinbase USDC.

On a consolidated basis, Coinbase’s total liquidity exceeded US$6 billion as of 3Q 2023 after accounting for net cash from operations.

With this level of liquidity, Coinbase seems to easily cover the payment due in the next 12 months, which totaled slightly over US$370 million, as shown in the previous section.

Even without the operating cash flow, Coinbase has enough liquidity to cover the upcoming payments due.

Moreover, Coinbase’s total liquidity can even cover the entire amount owed, which totaled slightly over US$4.1 billion as of 3Q 2023.

In short, Coinbase has sufficient liquidity to meet all payment obligations.

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Credit Rating

Coinbase’s credit rating as of 30 Sept 2023.

Ratings For Coinbase Global, Inc.
Rating Agencies	Types Of Debt		Outlook
	Issuer Default/Corporate	Long-Term Senior Unsecured
Moody’s	B2	B1	N.A.
Standard & Poor’s	BB-	BB-	N.A.

In January 2023, S&P Global Ratings announced a downgrade of Coinbase’s issuer credit rating and senior unsecured debt from BB to BB-, and Moody’s Investors Service (“Moody’s”) announced a downgrade of Coinbase’s Corporate Family Rating (“CFR”) to B2 from Ba3 and downgraded the guaranteed senior unsecured notes to B1 from Ba2.

In short, Coinbase obtained a non-investment grade for its corporate and long-term debt as of 3Q 2023.

Moody’s credit rating definitions can be found here – Moody’s.

Standard & Poor’s credit rating definitions can be found here – Hargreaves Lansdown.

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Summary

Despite a decline in revenue due to the COVID-19 pandemic and fluctuations in the cryptocurrency market, Coinbase has maintained a stable total debt level.

In addition, Coinbase has had more available cash than total debt, resulting in a consistently negative net debt.

Coinbase’s debt-leverage ratio was minor at just 0.52X. The company has also maintained a debt-to-equity ratio of less than 1.0X, indicating a cautious approach to borrowing.

Although Coinbase obtained a non-investment grade for its corporate and long-term debt as of 3Q 2023, it is unlikely to pose a significant risk to its financial health.

It is reassuring that Coinbase has maintained a stable total debt level, suggesting that the company has been cautious about taking on more debt.

By avoiding excessive borrowing, Coinbase will likely have a more manageable and sustainable financial situation in the long run.

This responsible financial strategy could also help Coinbase build trust among its stakeholders, including investors, customers, and regulators.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Coinbase Global, Inc.’s annual and quarterly filings, earnings reports, news releases, shareholder presentations, etc., which are available in Coinbase Investor Relations.

2. Pixabay images.

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Disclosure

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