Sam Bankman-Fried, founder and CEO of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, U.S., Wednesday, Aug. 17, 2022.
Jeenah Moon | Bloomberg | Getty Images
Last year, FTX rode the crypto craze to $1 billion in revenue as it expanded its global footprint through a series of acquisitions, according to internal documents seen by CNBC.
Audited financials give a rare insight into private start-up finances. FTX was profitable, quickly expanded worldwide and saw explosive growth.
Private crypto exchange revenue grew over 1,000% from $89 million to $1.02 billion in 2021. Its profitability, like many startups, depends on how you measure it. Operating income was $272 million, up from $14 million a year earlier. FTX had net income of $388 million last year, up from just $17 million the year before.
FTX declined to comment on the leaked financial documents.
The company had revenue of $270 million in the first quarter of 2022 and was on track to achieve revenue of approximately $1.1 billion in 2022, according to an investor filing shared with CNBC. But it’s unclear how FTX held up in the second quarter as crypto prices tumbled during the recent so-called “Crypto Winter.”
By way of comparison, publicly traded Coinbase also saw a cash boom during the crypto bull market, with $7.4 billion in revenue and $3.6 billion in net income last year. But in the second quarter of this year, it reported revenue of $808.3 million, a 64 percent decline from last year’s quarter, and a surprise net loss of $1.1 billion, compared with $1,590 million in net income from the same quarter last year as retail volumes soared.
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 shore up companies as liquidity ran dry. In addition to multiple loans of hundreds of millions of dollars, the Bankman-Fried companies also sought to acquire distressed assets. In July, FTX signed a deal that gives it the option to buy lender BlockFi and was in discussions to acquire South Korea’s Bithumb. FTX also offered to buy Voyager in August, but was rebuffed by what the company claimed was a “low-ball offer.”
FTX had roughly $2.5 billion in cash at the end of last year and profit margins of 27 percent, according to the filings. Margins approached 50% if advertising and “related party” expenses are removed. It last raised money in January, raising $400 million from investors including SoftBank’s Vision Fund 2 and Tiger Global, at a $32 billion valuation.
Global Footprint
FTX was founded at a time when Coinbase and Binance had established themselves as the largest trading sites in the world. Coinbase still operates primarily in the U.S. 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 U.S. market with a North- american
FTX has been quietly building its own fleet of global subsidiaries to compete.
FTX Trading Ltd is based in Antigua, with FTX Derivatives Markets based in the Bahamas, where Bankman-Fried lives. FTX Trading recently bought Switzerland’s Digital Assets DA AG, as well as Australia’s IFS Group and Hive, bringing the total to 15 smaller companies worldwide. Its portfolio companies span Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, among other countries, according to the filings. Crypto companies often acquire start-ups in order to quickly obtain the appropriate regulatory licenses to establish themselves in a new country.
Bankman-Fried also founded the trading firm Alameda Research, which accounts for about 6% of FTX trading volumes, according to the filings.
FTX’s US business is technically owned by a parent company, West Realm Shires Inc. As of 2021, FTX US accounted for less than 5% of total FTX revenue. Still, the company is making a push to expand here with a series of high-profile announcements and sponsorships.
According to the filings, FTX spent roughly 15% of revenue on advertising and marketing in 2021. That could explain its 2022 Super Bowl ad featuring actor Larry David and high-profile celebrity endorsements of 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 American Airlines Arena. FTX planned to spend about $900 million on advertising over the next few years, according to the filings.
The crypto exchange is also expanding into stock trading. It launched share 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 retail accounts in the States united Robinhood and Bankman-Fried have denied that a deal is in the works.
FTX has certainly stepped up its retail expansion efforts. But the filings show it’s still primarily a place for more sophisticated traders using derivatives, whether futures or options. Sixty-seven percent of revenue came from futures trading commissions, while roughly 16% came from so-called spot trading. Futures and derivatives trades tend to be more lucrative for exchanges.
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