FTX increased turnover by 1000% during cryptomania: Leaked financials

FTX rode the crypto craze to $1 billion in revenue last year while expanding its global footprint through a flurry of acquisitions, according to internal documents seen by CNBC.

The audited financials provide a rare insight into the finances of the privately owned start-up. FTX was profitable, expanded rapidly worldwide and saw explosive growth.

The privately held crypto exchange’s revenue rose more than 1,000% from $89 million to $1.02 billion in 2021. Profitability, like many startups, depends on how you measure it. Operating income was 272 million dollars, up from 14 million dollars the previous year. FTX had net income of $388 million last year, up from just $17 million the year before.

FTX refused to comment on the leaked financial documents.

The company brought in $270 million in revenue in the first quarter of 2022, and was on track to earn about $1.1 billion in revenue in 2022, according to an investor deck shared with CNBC. But it’s unclear how FTX fared in the second quarter as crypto prices plunged during the recent so-called “Crypto Winter.”

In comparison, publicly traded Coinbase also experienced a cash boom during crypto’s bull market, with $7.4 billion in revenue and $3.6 billion in net income last year. But in Q2 this year, it reported $808.3 million in revenue, down 64% from the year-ago quarter, and a surprise net loss of $1.1 billion, compared with $1.59 billion in net income in the same quarter last year. retail volumes cratered.

FTX was founded three years ago by former Wall Street quant trader Sam Bankman-Fried. The 30-year-old CEO has recently stepped in as the industry’s lender of last resort, looking to wind up companies as liquidity dried up. On top of several loans in the hundreds of millions of dollars, Bankman-Fried’s companies also looked to acquire distressed assets. In July, FTX signed an agreement that gives it the option to buy lender BlockFi and was in discussions to buy South Korean Bithumb. FTX also offered to buy Voyager in August, but was turned down for what the company claimed was a “low bid”.

FTX had about $2.5 billion in cash at the end of last year and 27% profit margins, according to the documents. Margins were close to 50% if expenses for advertising and “related parties” are removed. It last raised money in January, raising $400 million from investors such as SoftBank’s Vision Fund 2 and Tiger Global, valuing it at $32 billion.

FTX was founded at a time when Coinbase and Binance had established themselves as the world’s largest exchanges. Coinbase still operates largely within the US Binance, the largest exchange by trading volume started in China, later moved its headquarters to the Cayman Islands and is now making a push for the US market with a US subsidiary.

FTX has been quietly building its own fleet of global subsidiaries to compete.

FTX Trading Ltd is headquartered in Antigua, with FTX Derivatives Markets based in the Bahamas, where Bankman-Fried lives. FTX Trading recently acquired Digital Assets DA AG, out of Switzerland, as well as IFS Group and Hive out of Australia – bringing the total to 15 smaller companies worldwide. The portfolio companies span Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, among other countries, according to the documents. Crypto companies often buy startups to quickly get the right regulatory licenses to set up shop in a new country.

Bankman-Fried also founded the trading firm Alameda Research, which accounts for about 6% of FTX’s exchange volume, according to the documents.

FTX’s US operations are technically owned by a parent company, West Realm Shires Inc. As of 2021, FTX US accounted for less than 5% of FTX’s total revenue. Still, the company is making a push to expand here with a series of high-profile ads and sponsorships.

FTX spent about 15% of its revenue on advertising and marketing in 2021, according to the documents. That could explain the 2022 Super Bowl ad featuring actor Larry David and high-profile celebrity endorsements from Tom Brady and Giselle Bündchen, who are also equity investors in the company. FTX also bought the naming rights to Miami’s NBA arena, formerly the American Airlines Arena. FTX planned to spend an estimated $900 million on advertising in the coming years, according to the documents.

The crypto exchange is also expanding into share trading. It launched stock trading weeks after Bankman-Fried took a passive 7.6% stake in Robinhood, fueling speculation that FTX is looking to buy the trading app in a land grab for US retail accounts. Robinhood and Bankman-Fried have denied that a deal is in the works.

FTX has certainly stepped up its retail expansion. But the documents show that it is still mainly a place for more sophisticated traders who use derivatives – either futures or options. 67 percent of the income came from trading fees for futures, while approximately 16 percent came from so-called spot trading. Futures and derivatives trades tend to be more lucrative for exchanges.