Sam Bankman-Fried, Founder and Managing Director of FTX Cryptocurrency Derivatives Exchange, speaks during an interview on an episode of Bloomberg Wealth with David Rubenstein in New York, U.S., Wednesday, August 17, 2022.
Jeena Moon | Bloomberg | Getty Images
FTX took 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.
Audited financial statements provide a rare insight into the private company’s finances. FTX was profitable, expanded rapidly across the globe, and experienced skyrocketing growth.
The crypto exchange’s revenue soared over 1,000% from $89 million to $1.02 billion in 2021. Its profitability, like many start-ups, depends on how you measure it . Operating profit was $272 million, down from $14 million a year earlier. FTX posted a net profit of $388 million last year, up from just $17 million a year earlier.
FTX declined to comment on the leaked financial documents.
The company generated $270 million in revenue in the first quarter of 2022 and was on track to make about $1.1 billion in revenue 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 plunged during the recent so-called “Crypto Winter.”
For comparison, the publicly traded Coinbase also experienced 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 posted revenue of $808.3 million, down 64% from the year-ago quarter and a surprise net loss of $1.1 billion. , down from $1.59 billion in net profit a year earlier, as retail trading volumes slumped.
FTX was founded three years ago by former Wall Street quantitative trader Sam Bankman-Fried. The 30-year-old CEO recently stepped in as the industry’s lender of last resort, seeking to prop up businesses as cash dried up. In addition to multiple loans of hundreds of millions of dollars, Bankman-Fried companies have also sought to acquire distressed assets. In July, FTX signed a deal that gives it the option to buy lender BlockFi and was in talks to acquire South Korean Bithumb. FTX also offered to buy Voyager in August, but was turned down for what the company called a “low offer.”
FTX had about $2.5 billion in cash at the end of last year and 27% profit margins, the documents show. Margins were closer to 50% if advertising and “related party” expenses were removed. It last raised funds in January, raising $400 million from investors like SoftBank’s Vision Fund 2 and Tiger Global, at a valuation of $32 billion.
FTX was founded at a time when Coinbase and Binance had solidified themselves as the largest trading platforms in the world. Coinbase still operates largely in the US Binance, the largest exchange by trading volume started in China, later moved its headquarters to the Cayman Islands and is now making inroads into the US market with a US subsidiary.
FTX has quietly built its own fleet of global affiliates to compete.
FTX Trading Ltd. is headquartered in Antigua, while FTX Derivatives Markets is based in the Bahamas, where Bankman-Fried lives. FTX Trading recently bought Digital Assets DA AG, Switzerland, as well as IFS Group and Hive in Australia, bringing the total to 15 small companies around the world. Its holding companies cover Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, among other countries, according to the documents. Crypto companies often acquire start-ups to quickly obtain the appropriate regulatory licenses to set up shop in a new country.
Bankman-Fried also founded trading firm Alameda Research, which accounts for about 6% of FTX’s trading volumes, according to the documents.
FTX’s US business is technically owned by a parent company, West Realm Shires Inc. In 2021, FTX US accounted for less than 5% of total FTX revenue. Still, the company is pushing to expand in the United States with a series of high-profile announcements and sponsorships.
FTX spent about 15% of its revenue on advertising and marketing in 2021, according to the documents. That may explain its 2022 Super Bowl ad featuring actor Larry David and high-profile celebrity endorsements of Tom Brady and Giselle Bündchen, who are also stock investors in the company. FTX also purchased the naming rights to Miami’s NBA Arena, formerly the American Airlines Arena. FTX planned to spend around $900 million on advertising in the coming years, according to the documents.
The crypto exchange is also growing in stock 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 landgrab for retail accounts. Americans. Robinhood and Bankman-Fried have denied a deal is in the works.
FTX has certainly stepped up its retail expansion efforts. But the documents show it is still primarily a place for more sophisticated traders using derivatives – either futures or options. About two-thirds of revenue came from futures trading fees, while about 16% came from so-called spot trading. Futures and derivatives contracts tend to be more lucrative for exchanges.