Analysts see Coinbase miss driven by crypto market weakness, not business fundamentals
Coinbase shares tumbled to end the week as investors weighed another quarterly loss for the company that’s fighting through a tough market environment. That reignited the debate for investors over whether the crypto services firm can become meaningfully less dependent on crypto trading and continue generating other revenue through trading slumps. The Street agrees overall: its second-quarter weakness was driven by the weakness in crypto market conditions – which was widely anticipated by investors – not by a failing strategy. There are several examples in the report that show Coinbase has actually strengthened its competitive position in the current downturn: The company is seeing record market share in trading volume, growth in prediction markets that doubled from the previous quarter, growth in derivatives trading, record Coinbase One subscription memberships, ongoing stablecoin momentum and expansion in its home grown blockchain Base — despite macroeconomic challenges. Nearly 50% of the quarter’s revenue came from subscription and services. COIN 5D mountain COIN 5-day chart The problem, for some investors, is that although Coinbase is less dependent on crypto trading, it’s still too dependent on crypto trading — and there are few, if any, signs of a near-term recovery. Shares were last down 14%. Coinbase chief financial officer Alesia Haas defended the strategy, emphasizes that new products are in their early stages compared to mature, cyclical businesses like trading. “We’re six months into products where the other products are 10 plus years old,” she told CNBC. “We’re comparing a mature cyclical business … crypto has always gone through cycles, we’ve been here before. We’ve demonstrated as a public company that we know how to navigate crypto cycles. What we are now demonstrating is that we are innovating and driving new product adoption … [and] we’ve really accelerated our product velocity.” Wall Street analysts react BTIG analyst Andrew Harte said that the quarter may have been weak, but for reasons investors already expected, and that Coinbase’s long-term competitive position improved, per the earnings report. He maintained his buy rating on the stock but trimmed his price target to $240 from $260. Piper Sandler had a more bearish take. Analyst Patrick Moley said the business is weakening faster than expected, especially when compared to competitors. He lowered his price target on the shares to $146 from $155. “The pressure for COIN to monetize its ‘Everything Exchange’ is mounting as peers with more diversified, multi-asset offerings (e.g. Robinhood) continue seeing strong growth in the face of the crypto winter,” he wrote in a note late Thursday. If trading activity doesn’t rebound soon, Coinbase may need another round of cost cuts like it saw in the last crypto downturn, when it cut 18% of the workforce in June 2022 and another 20% in January 2023, Moley added. “It’s anyone guess when activity will rebound,” he said. “We believe that if trading volumes don’t recover soon, more cost levers are likely to be pulled.” Rosenblatt’s Chris Brendler is in the broad camp that’s bullish on the business even if cautious in the near term. He lowered his price target to $200 from $240. “Deepening crypto weakness drove widespread top line underperformance,” Brendler said in a note. “In our view, however, the shortfall is cyclical, driven by the sector-wide volume slump, not competitive pressure on COIN’s franchise.” John Todaro from Needham and Peter Christiansen from Citi echoed that take, noting that execution on the non-trading businesses is going well, but crypto trading – still the biggest driver of earnings – is still deteriorating. Todaro also said “AI equities and commodity activity needs to cool off to bring retail trading back into crypto.” Both firms reduced their price target on the shares but kept their buy ratings.
