Why Silvergate Capital Missed Estimates in its Q4 Earnings Report

Silvergate Capital (NYSE:SI), a bank focused on cryptocurrencies, continues to grow, but the company posted weak results in its recent quarter.

In this episode of “Beat and Raise” recorded on Jan. 21, Fool.com contributors Connor Allen and Brian Withers discuss the good and the bad in the company’s fourth-quarter earnings report and what to expect from Silvergate going forward.

Brian Withers: Hey Connor, we’re going to talk about Silvergate Capital. This is like a bank that got into crypto back in 2013. They did.

Connor Allen: They did not have a great quarter, Brian. They did not have a great quarter at all. Shares are down nine percent since they reported. Let me go ahead and pull this up. But before I go into specifically about what the earnings were like, I just want to hit on the company because not a lot of people know what Silvergate does. They’re not your typical bank that you would look at. They work as a conventional bank that lashed itself to crypto. That is what they do. They focus on giving crypto back to deposits and making loans to people so that they can buy more crypto. The way that this works is they will loan out US dollars to a customer if they have Bitcoin at all for that loan, and they are one of the only banks, if not the only bank, that does this. I believe they might be the only one that does that.

I’m not talking about you and me, Brian, I’m not talking about us going to Silvergate and getting a loan for our Bitcoin that we own or dozens that both own, but I’m talking more like Coinbase, I’m talking Square and PayPal. Those are the customers that Silvergate has that use Bitcoin as collateral. So obviously, most companies in this space are very volatile. There’s no difference between Silvergate and any other company in this space. I was looking at the chart. I had Ycharts up and looking at their price versus the price of Grayscale Bitcoin Trust, pretty much directly follows Bitcoin, and it’s almost like a leveraged play on Bitcoin because when Bitcoin’s price goes up a little bit, Silvergate’s goes up a lot, and when it’s down a little bit, Silvergate’s goes down a lot. It’s been very lucrative when Bitcoin is going up, but really painful when it’s going down and that’s the way that their stock price goes. But let’s go ahead and hit on the quarter that they had.

Brian Withers: Just one more piece. They are not just tied to Bitcoin, they do an exchange for all sorts of crypto.

Connor Allen: They do. Bitcoin is just the main one that is used as collateral. If I were to pull up that chart and choose Ethereum or choose Solana, all cryptos typically run together. It’s not really Bitcoin, it’s just the crypto space in general. Pretty correlated to that area, but let’s go ahead and hit on earnings. Revenue missed expectations by eight percent and reached $49 million.

Brian Withers: You moved the slide forward. Just hit it…