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Coinbase went public almost a year ago, in mid-April 2021.
Michael Nagle/Bloomberg
Coinbase
Global is expected to show gains in revenues and profits when the cryptocurrency exchange delivers its quarterly numbers after the market close Thursday.
Just don’t count on an earnings beat to lift the platform’s ailing stock.
Wall Street expects Coinbase (ticker: COIN) to report fourth-quarter revenues of $1.97 billion, up 50% from the third quarter, according to consensus estimates compiled by
FactSet
.
Analysts are looking for $1.94 in earnings per share, a 20% increase.
Coinbase is also expected to report gains in its user base, taking the total to 77.8 million verified accounts—up from 73 million. Monthly transacting users are expected to reach 9.7 million users, up from 7.4 million. And trading volume should hit a record $465 billion, up from $327 billion.
All the estimates look quite impressive. But even if Coinbase manages to top the projections, the stock might not react favorably. Shares are down 30% this year, reflecting broader weakness in Bitcoin and investor demand for risky crypto assets in general.
At $38,000 a coin, Bitcoin remains down nearly 50% from its all-time high of roughly $69,000 reached in November. Coinbase stock is about 70% correlated to Bitcoin and has largely tracked Bitcoin’s decline. Trading around $176 each, the shares have lost more than half their value since November.
Several analysts now expect a tougher year ahead for both Bitcoin and Coinbase stock. J.P. Morgan analyst Kenneth Worthington slashed his price target on Coinbase from $447 to $345 on Wednesday—and he cut his 2022 adjusted earnings estimate from $7.20 a share to $6.46.
Materially lower prices for Bitcoin and Ether, the second largest crypto, will probably drive lower transaction revenue for Coinbase, Worthington wrote. And weakness in the two big cryptos is likely to pressure revenue from custody services and “staking,” whereby Coinbase earns revenues from Ether being used as collateral to secure and process transactions on the Ethereum network.
Despite the headwinds, Worthington maintained his Overweight rating on the stock.
D.A. Davidson’s Christopher Brendler also slashed his price target on Wednesday—to $275 from $400. He estimated that Coinbase’s average daily trading volume is down 38% so far in the first quarter, compared with the fourth quarter of 2021.
The drop could result in Coinbase slashing its outlook for the first quarter of 2022—and it could signal a tougher year ahead. “Coinbase continues to be well-positioned to gain share,” Brendler said, “but we’ve lowered 2022 estimates to reflect the more challenging market conditions.”
One key data point will be Coinbase’s “take rate,” which refers to its cut of trading-related revenues from commissions and other sources. Coinbase’s retail take rate fell to an average 1.1% in the third quarter, down from 1.4% in the fourth quarter of 2020. The rate also fell 16 basis points, or hundredths of a percent, from the third quarter.
Brendler is optimistic that the retail take rate will now stabilize. And while there is price pressure, he argues that Coinbase trading fees are actually in line with other retail-friendly trading apps including
PayPal
(PYPL) and Block (SQ), formerly called Square.
The analyst maintained a Buy rating, noting that Coinbase is developing new revenue streams including a marketplace for nonfungible tokens, or NFTs. Coinbase remains “the best brand in the space,” Brendler wrote, doing for crypto what
Apple
(AAPL) did for smartphones and
Robinhood Markets
(HOOD) did for retail stock trading.
While the comparisons may be apt, investors are still treating Coinbase like a derivative of Bitcoin. If the world’s largest crypto fails to mount a comeback, Coinbase stock probably won’t rebound either.
Write to Daren Fonda at daren.fonda@barrons.com