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FTX grew revenue 1,000% in the course of the crypto craze: Leaked financials

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Sam Bankman-Fried, founder and chief executive officer of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in Recent York, US, on Wednesday, Aug 17, 2022.

Jeenah Moon | Bloomberg | Getty Images

FTX rode the crypto craze to a billion dollars in revenue last 12 months while expanding its global footprint through a flurry of acquisitions, in response to internal documents seen by CNBC.

The audited financials give a rare glimpse into the privately held company’s funds. FTX was profitable, quickly expanding across the globe and saw breakneck growth.

The crypto exchange’s revenue soared greater than 1,000% from $89 million to $1.02 billion in 2021. Its profitability, like many start-ups, is dependent upon the way you measure it. Operating income was $272 million, up from $14 million a 12 months earlier. FTX saw net income of $388 million last 12 months, up from just $17 million a 12 months earlier.

FTX declined to comment on the leaked financial documents.

The corporate brought in $270 million in revenue in the primary quarter of 2022, and was on course to do roughly $1.1 billion in revenue in 2022, in response to an investor deck shared with CNBC. Nevertheless it’s unclear how FTX held up within the second quarter as crypto prices plunged in the course of the recent so-called “Crypto Winter.”

By means of comparison, publicly traded Coinbase also experienced a money boom during crypto’s bull market, with $7.4 billion in revenue and $3.6 billion of net income last 12 months. But within the second quarter of this 12 months, it reported $808.3 million in revenue, a decline of 64% from the year-ago quarter, and a surprise net lack of $1.1 billion, compared with $1.59 billion in net income a 12 months earlier, as retail trading 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 because the industry’s lender of last resort, seeking to backstop corporations as liquidity dried up. On top of multiple loans of a whole bunch of tens of millions of dollars, Bankman-Fried’s corporations also looked to accumulate distressed assets. In July, FTX signed a deal that offers it the choice to purchase lender BlockFi and was in discussions to accumulate South Korean Bithumb. FTX also offered to purchase Voyager in August but was turned down for what the corporate claimed was a “low ball bid.”

FTX had roughly $2.5 billion in money at the tip of last 12 months and 27% profit margins, in response to the documents. Margins were closer to 50% if promoting and “related party” expenses are stripped out. It last raised money in January, collecting $400 million from investors like 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 solidified themselves because the world’s largest trading venues. Coinbase still operates largely inside the U.S. Binance, the most important exchange by trading volume got its start in China, later moved its headquarters to the Cayman Islands and is now making a push for the U.S. market with an American subsidiary.

FTX has been quietly constructing its own fleet of worldwide subsidiaries to compete.

FTX Trading Ltd. is headquartered in Antigua, with FTX Derivatives Markets based within the Bahamas, where Bankman-Fried lives. FTX Trading recently bought Digital Assets DA AG, out of Switzerland, in addition to IFS Group and Hive out of Australia – bringing the overall to fifteen smaller corporations internationally. Its portfolio corporations span Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, amongst other countries, in response to the documents. Crypto corporations often acquire start-ups to quickly get the right regulatory licenses to establish shop in a recent country.

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

FTX’s U.S. business is technically owned by a parent company, West Realm Shires Inc. As of 2021, FTX U.S. made up lower than 5% of FTX’s total revenue. Still, the corporate is making a push to expand within the U.S. with a series of high-profile ads and sponsorships.

FTX spent roughly 15% of revenue on promoting and marketing in 2021, in response to the documents. That will account for its 2022 Super Bowl ad with actor Larry David and high-profile celebrity endorsements by Tom Brady and Giselle Bündchen, who’re also equity investors in the corporate. FTX also bought the naming rights to Miami’s NBA arena, formerly the American Airlines Arena. FTX planned to spend an estimated $900 million in promoting in the approaching years, in response to the documents.

The crypto exchange can also be expanding into stock trading. It launched equities trading weeks after Bankman-Fried took a 7.6% passive stake in Robinhood, fueling speculation that FTX is seeking to buy the trading app in a landgrab for U.S. retail accounts. Robinhood and Bankman-Fried have denied that a deal is within the works.

FTX has definitely ramped up its retail expansion efforts. However the documents show that it’s still mainly a venue for more sophisticated traders using derivatives – either futures, or options. About two-thirds of revenue got here from futures trading fees, while roughly 16% got here from so-called spot trading. Futures and derivatives trades are inclined to be more lucrative for exchanges.

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