Gemini Stock Tumbles Following Post-Nasdaq Earnings Debut - What’s Next for Crypto’s Public Market Darling?

Gemini's first earnings call as a public company sent shockwaves through crypto markets today.

The exchange's shares plunged nearly 15% in after-hours trading as investors digested mixed Q3 results. While revenue beat estimates, rising compliance costs ate into margins - a familiar story in our over-regulated industry.

Wall Street's reaction proves what we've known all along: traditional markets still don't understand crypto's growth trajectory. The suits see short-term volatility where we see long-term infrastructure being built.

Here's the real takeaway: Gemini's public market growing pains create a buying opportunity for crypto believers. Every institutional cold feet moment is another chance to accumulate before the next bull run.

After all, since when has following Wall Street's lead ever made anyone rich in this space?

TLDR

• Gemini’s Q3 revenue grew 52% to $49.8 million, led by transaction and services.
• The company posted a $159.5 million net loss, up from $90.2 million last year.
• Operating expenses more than doubled to $171.4 million due to IPO costs.
• Gemini recorded a $106.8 million gain on digital assets and an $83.1 million loss.

Gemini’s stock experienced a decline in post-market trading following the release of its first quarterly earnings report since its September Nasdaq debut. While the crypto exchange posted strong revenue growth, it also faced a substantial increase in losses, sending investor sentiment downward. With operating expenses rising sharply and a widening net loss, the company now faces pressure to shift from expansion spending to achieving profitability in the upcoming quarters.

Revenue Growth but Rising Losses

Gemini’s third-quarter earnings report showed a notable increase in revenue, but its financial losses also grew. The company posted a 52% rise in net quarterly revenue, reaching $49.8 million. This growth was driven primarily by transaction and services revenue, which increased by 26% and 111%, respectively, compared to the previous quarter.

Transaction revenue amounted to $26.3 million, while services revenue surged to $19.9 million, benefiting from increased use of Gemini’s credit card, staking, and custody products.

However, despite the revenue growth, the company’s expenses more than doubled, leading to a larger net loss. Gemini reported a net loss of $159.5 million, a significant increase compared to the $90.2 million loss it posted in the same period the previous year. The loss per share was $6.67, far exceeding analysts’ expectations of a loss of $3.24 per share.

Surge in Operating Expenses

A primary factor behind the company’s widening loss was the substantial increase in operating expenses. Total operating expenses more than doubled to $171.4 million from $76.8 million a year ago. The largest portion of this increase came from higher salaries and compensation, which ROSE to $82.5 million. Additionally, sales and marketing costs grew to $32.9 million, as the company increased its efforts to promote its services and attract new customers.

Gemini attributed the rise in expenses to its transition to a public company. In a shareholder letter, the firm stated that much of the increase was due to “higher marketing and customer reward investments” as well as “elevated stock-based compensation costs” tied to its IPO. The company emphasized that these investments were aimed at scaling the platform and driving future growth.

Mixed Results from Crypto Investments

Gemini’s performance in the cryptocurrency market also reflected mixed results. On one hand, the company recorded a $106.8 million gain on its digital assets, benefiting from the rise in crypto prices. On the other hand, it faced an $83.1 million loss related to crypto loans with related parties. This uneven performance further complicated the company’s financial picture and contributed to investor concerns.

Despite the strong growth in its service and transaction segments, these gains were overshadowed by the losses on crypto-related positions. As a result, investor sentiment soured, with Gemini’s stock falling 6.18% in after-hours trading, even though it had closed the regular session up by 4%.

Competition with Coinbase

Gemini’s performance contrasts with that of its competitor, Coinbase, which posted a profit in the same quarter. Coinbase’s stock rose following its earnings report, reflecting stronger investor confidence in its ability to manage both growth and profitability. As a result, attention is now on Gemini to see if it can successfully pivot from aggressive growth spending to achieving profitability in the upcoming quarters.

Investors will likely focus on how Gemini manages its increasing operating expenses and whether it can become profitable while continuing to expand its services. The pressure is on for the company to balance its spending on marketing and infrastructure with the need for sustainable financial performance.