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 New York, US, on Wednesday, August 17, 2022.
Jeenah Maan | Bloomberg | Getty Images
FTX drove the crypto craze to $1 billion in sales last year as it expanded its global footprint through a slew of acquisitions, according to internal documents seen by CNBC.
The audited financials provide a rare glimpse into the private start-up’s finances. FTX was profitable, expanding rapidly around the world and experiencing rapid growth.
The private crypto exchange’s revenue grew more than 1,000% from $89 million to $1.02 billion in 2021. Profitability, like many start-ups, depends on how you measure it. Operating income was $272 million, up from $14 million a year earlier. FTX saw net income of $388 million last year, up from just $17 million a year earlier.
FTX declined to comment on the leaked financial documents.
The company raised $270 million in revenue in the first quarter of 2022 and was on track to hit about $1.1 billion in revenue by 2022, according to an investor deck shared with CNBC. But it’s unclear how FTX held up in the second quarter, as crypto prices fell during the recent so-called “Crypto Winter.”
In comparison, publicly traded Coinbase also experienced a cash boom during the crypto bull market last year, with $7.4 billion in revenue and $3.6 billion in net income. But in the second quarter of this year, it reported revenue of $808.3 million, down 64% from the same quarter a year ago and a surprising net loss of $1.1 billion, compared to $1.59 billion. in net income in the same quarter last year, as retail trading volumes have shrunk.
FTX was founded three years ago by former Wall Street quantum trader Sam Bankman-Fried. The 30-year-old CEO has recently stepped in as the industry’s last lender, looking to stop companies from behind as liquidity dries up. In addition to multiple loans of hundreds of millions of dollars, Bankman-Fried’s companies also sought to acquire distressed assets. In July, FTX signed a deal giving it the option to buy lender BlockFi and was in talks to acquire South Korea’s Bithumb. FTX also offered to buy Voyager in August, but was turned down because the company claimed it was a “low ball offer.”
According to the documents, FTX had about $2.5 billion in cash at the end of last year and a 27% profit margin, according to the documents. Margins were closer to 50% if advertising and ‘related parties’ spending were omitted. It last raised money in January, raising $400 million from investors such as 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 world’s largest trading platforms. Coinbase still operates largely within the US Binance, the largest exchange in terms of trading volume got its start in China, later moved its headquarters to the Cayman Islands and is now making a push into the US market with a US subsidiary.
FTX has quietly built 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 resides. FTX Trading recently acquired Digital Assets DA AG of Switzerland, as well as IFS Group and Hive of Australia, bringing the total to 15 smaller companies around the world. According to the documents, the portfolio companies include Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates. Crypto companies often acquire startups to quickly get the right legal licenses to establish themselves in a new country.
Bankman-Fried also founded trading company Alameda Research, which according to the documents accounts for about 6% of FTX’s exchange volumes.
FTX’s US operations are technically owned by a parent company, West Realm Shires Inc. As of 2021, FTX US represented less than 5% of FTX’s total revenue. Still, the company is trying to expand here with a series of high-profile advertising and sponsorships.
According to the documents, FTX spent about 15% of its revenue on advertising and marketing in 2021. That may explain the 2022 Super Bowl ad featuring actor Larry David and high-profile celebrities by 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. According to the documents, FTX would spend an estimated $900 million on advertising over the next few years.
The crypto exchange is also expanding into stock trading. It launched stock trading weeks after Bankman-Fried took a 7.6% passive stake in Robinhood, fueling speculation that FTX wants 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 efforts. But the documents show that it is still primarily a meeting place for more sophisticated traders who use derivatives – either futures or options. Sixty-seven percent of revenue came from futures trading fees, while about 16% came from so-called spot trading. Futures and derivatives transactions tend to be more lucrative for exchanges.