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Cryptocurrency exchange Coinbase beat second-quarter forecasts, but a tepid outlook may be weighing on the shares.
Vladyslav Yushynov/Dreamstime
Coinbase
Global topped Wall Street forecasts for sales and profits in the second quarter, as trading volume and transaction revenue continued to build. The stock fell in after-hours trading Tuesday, reflecting a muted third-quarter outlook from the company, but have rebounded in the early hours of Wednesday.
Coinbase (ticker: COIN) easily topped consensus estimates for sales and profits. Total revenue of $2.2 billion beat forecasts for $1.85 billion. Adjusted earnings before interest, taxes, depreciation, and amortization came in at $1.15 billion, surpassing estimates for $854 million, according to FactSet.
Coinbase’s diluted earnings per share of $6.42 also topped Wall Street’s consensus forecast for EPS of $2.82.
Shares were trading down 1% to $267 after hours, however, after falling 3.9% in the regular session, but were up 2.3% in premarket trading.
“[The] stock will likely continue to be volatile given multiple broad factors, mostly related to the regulatory environment,” writes Wedbush analyst Moshe Katri.
The largest publicly traded crypto exchange reported that trading volume and transaction revenue continued to gain momentum. Monthly transaction users went to 8.8 million from 6.1 million in the first quarter. Trading volume rose to $462 billion from $335 billion.
The value of assets on Coinbase’s platform declined, however, from $223 billion to $180 billion, reflecting declines in prices for Bitcoin in the quarter. The company said that “despite price movements, we saw billions of dollars of net asset inflows and new customers added throughout Q2.”
But Coinbase’s outlook may be weighing on the stock. Trading volume was weak in July as Bitcoin prices slumped from the spring. August is showing improvements in volume—lifted by the recent rally in Bitcoin and other cryptos—but remains down from earlier in the year, the company said. Consequently, Coinbase expects monthly users and trading volume to be lower in the third quarter, compared with the June quarter.
Mizuho’s Dan Dolev maintained a Neutral rating on the stock, noting that its results from here are literally a “coin toss.”
Coinbase’s retail trading volume of $145 billion was up 21% from the first quarter, while institutional volume rose 47% to $317 billion. But the company’s guidance for monthly trading users for its full 2021 year was slightly below its forecast in the first quarter. Coinbase now expects a range of 5.5 million to 8 million monthly users, reducing its upper estimate by a half million users.
“With August average daily volumes running 80% above July, the excitement around the stock in the past week is somewhat understandable,” Dolev writes. “However, since volatility can fade just as quickly as it comes, Coinbase’s fiscal-year outlook remains somewhat of a coin toss.”
Coinbase says it’s gaining traction with retail traders who are “deepening their engagement” on the platform through staking their digital tokens to earn a reward or yield. More than 9,000 financial institutions are now using Coinbase, the company said, for its “deep pools of liquidity” and range of services. The company said that in the last few months, it’s formed partnerships with crypto backers like
Tesla
(TSLA) CEO Elon Musk, along with banking firm
PNC Financial Services Group
(PNC), Third Point LLC (Dan Loeb’s hedge fund), and
WisdomTree Investments
(WETF).
Some analysts remained bullish on the Coinbase stock. BTIG’s Mark Palmer reiterated a Buy rating and $500 target. Coinbase is seeing volume pick up from Ethereum, related to the growth in decentralized financial networks and non-fungible tokens on that blockchain, Palmer notes. And he likes the fact that Coinbase is reducing its reliance on retail as it builds out institutional services.
It all points to crypto gaining more traction in the investment world. But Coinbase is still a play on Bitcoin and other crypto assets, which may be influenced as much by regulatory policies in Washington and other countries as overall demand for “risk assets,” and alternative currencies and assets.
Whether Coinbase stock investors will profit from it all remains a tossup.
Write to Daren Fonda at daren.fonda@barrons.com