Coinbase’s ‘Solid’ Earnings May Get Derailed by Low Volume, Fed Headwinds, Analysts Say

Wall
Street
analysts
characterized
Coinbase’s
(COIN)
second-quarter
earnings
as
‘solid’,
given
the
industry’s
downtick
in
trading
volume
–
the
exchange’s
biggest
source
of
income
historically.

“It
was
a
solid
quarter
in
what
was
a
far
less
robust
market
than
we
witnessed
in
1Q24,”
J.P.
Morgan
analysts
wrote
in
a
note
on
Friday.
The
bank
maintained
its
neutral
rating
on
the
stock.

Similarly,
Oppenheimer
analyst
Owen
Lau,
who
rates
the
crypto
exchange
outperform,
wrote:
“We
believe
COIN
has
found
the
formula
to
remain
profitable
despite
earnings
volatility,
and
be
a
resounding
leader
in
this
space.”

The
San
Francisco-based
firm

reported
total
revenue
of
$1.45
billion
versus
an
average
estimate
of
about
$1.4
billion,
according
to
FactSet
data.
Revenue
from
transaction
fees
slipped
27%
from
the
previous
quarter
due
to
a
28%
lower
volume
during
the
quarter.

Coinbase
shares
were
down
more
than
3%
as
digital
assets
and
broader
equity
markets
fell
on
Friday.

Looking
ahead,
the
company
seems
optimistic
about
some
of
its
other
ventures
to
bring
in
more
capital,
such
as
its
offering
of
derivatives
products
and
Coinbase
Wallet,
its
self-custody
wallet.

“Management
indicated
there
are
other
revenue
streams
that
are
beginning
to
have
an
impact
on
the
company’s
blended
average
take
rate
which
are
not
included
in
spot
trading
volumes
but
are
in
revenues,”
analysts
at
British
bank
Barclays,
which
maintains
an
“underweight”
rating,
noted.

Overall,
the
analysts
got
a
positive
sentiment
from
Coinbase’s
management
call
which
highlighted
the
expansion
of
several
strategic
growth
initiatives
and
a
more
friendly
political
environment.

However,
Oppenheimer’s
Owen
Lau
notes
that
if
the
current
trend
continues,
revenue
in
the
third
quarter
will
likely
be
lower
than
the
previous
quarter
combined
with
likely
lower
interest
rates
by
the
Federal
Reserve
in
October.
Coinbase
also
predicted
that
operating
expenses
will
remain
high
in
the
next
quarter
due
to
high
spending
in
sales
and
marketing.

With
the
Federal
Reserve
hinting
at
rate
cuts
as
early
as
September
and
recent
employment
numbers
showing
a
softening
job
market,
much
of
the
exchange’s
performance
towards
the
end
of
the
year
could
depend
on
the
macroeconomic
landscape.

“What
will
be
interesting
to
see
is
whether
crypto
will
be
correlated
with
the
stock
market
–
which,
if
it
is,
then
things
could
be
seriously
murky,”
said
Brian
D.
Evans,
founder
and
CEO
of
venture
capital
firm
BDE
Ventures.
“But
if
crypto
shows
a
correlation
with
gold,
then
upwards
should
be
the
trajectory.”

“With
these
BTC
and
ETH
ETFs
in
the
U.S.
and
other
markets,
we
could
see
the
gold
correlation
actually
play
out,
meaning
that
crypto
could
boom.
This
would
be
the
perfect
scenario
for
Coinbase,
which
experienced
decent
second-quarter
numbers,”
he
said.

The
U.S.

added
just
114,000
jobs
in
July,
well
below
estimates
of
175,000,
with
the
unemployment
rate
rising
to
4.3%,
according
to
the
Bureau
of
Labor
Statistics.

As
a
result,
the
10-year
Treasury
yield
dropped
15
basis
points
to
the
lowest
percentage
since
December,
signaling
markets
fear
a
slowdown
in
economic
growth.

The
Federal
Reserve
is
expected
to
lower
interest
rates
during
its
meeting
in
September
with
traders
betting
on
a
70%
chance
of
a
50
basis
point.