Coinbase Q2 earnings could be pretty rough, analysts say

Analysts are pointing to estimated declines in adjusted EBITDA and trading volume

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Coinbase CEO Brian Armstrong | Source: TechCrunch "775208327GB00107_TechCrunch" (CC license)

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Coinbase is set to share its first quarterly results since the SEC sued the crypto exchange, and analysts are not expecting it to go well. 

Company executives are slated to discuss the results on Aug. 3. Industry watchers will have their eyes on trading volumes and adjusted EBITDA, for example — areas they believe took large hits during the second quarter of 2023.

Coinbase improved its net loss from $557 million during the fourth quarter of last year to $79 million in the first three months of 2023. 

The exchange generated $284 million in adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — last quarter compared to a $124 million loss in the prior quarter. 

Read more: The Coinbase Q1 stats that stood out most to analysts

About a month after Coinbase reported its first quarter results, the SEC launched a lawsuit against the company for allegedly operating as an unregistered exchange. 

“Unlike last quarter [when] we saw potential upside going into the print, this quarter is the opposite,” said Owen Lau, an executive director at Oppenheimer and Co. 

Lau told Blockworks he estimates Coinbase’s trading volume to have fallen 34% quarter over quarter — from $145 billion to $91 billion. The exchange’s adjusted EBITDA could fall about 90% to $29 million, he added.

Coinbase’s stock price stood at $98.61 at 9:30 am ET on Tuesday morning — up about 193% year to date. 

Mark Palmer, an analyst for Berenberg Capital Markets, said the Ripple ruling and the prospects of a spot bitcoin ETF approval have given some investors “a false sense of confidence” about Coinbase’s prospects.

In addition to weak transaction volumes, Coinbase’s results are likely to reflect lower interest income from USDC. The exchange, which introduced the stablecoin with payments company Circle in 2018, offers users rewards by holding USDC on Coinbase.

Interest income rose to about $240 million during the first quarter, up from $182 million during the prior quarter. Of that $240 million, $199 million was USDC, Coinbase said in its Q1 shareholder letter.

But USDC’s market capitalization has fallen by more than 50% over the past year.

Read more: Why USDC’s market cap is half of what it was a year ago

“We see no reason why Coinbase’s guidance for the balance of the year should be particularly encouraging,” Palmer said. “While interest income on USDC has been a tailwind for Coinbase since interest rates started to rise, the continued decline in the stablecoin’s market cap raises real questions about the extent to which that income will support its operating performance going forward.”

Morningstar Analyst Michael Miller said he will be paying particular attention to Coinbase’s expenses and non-trading revenue sources.

The exchange’s operating expenses fell to $896 million in the first three months of 2023, a 24% drop from the previous quarter. The figure represented its lowest level of expenses since the first quarter of 2021. 

“Coinbase has signaled that it’s pulling back on its investment spending during weak cryptocurrency markets and what it chooses to continue to invest in will indicate what it sees as priorities,” Miller told Blockworks. 

Still, Coinbase said in its May shareholder letter that it expected second quarter expenses to increase due in part to higher legal expenses.

The Morningstar analyst said he is also keeping an eye on any momentum Coinbase reports related to reducing its reliance on transaction fees. 

Coinbase’s so-called subscription and services revenue, the bulk of which was interest income last quarter, also includes blockchain rewards from staking and custodial fee revenue. Combined, the category brought in about $362 million last quarter, compared to $375 million of transaction revenue.   

“Coinbase being selected to provide custodial and surveillance services for a potential Blackrock ETF is a win on this front,” he said. “But it remains to be seen how much subscription and service growth Coinbase can create outside of interest income, which is now facing major headwinds.” 

Guidance around the road forward as Coinbase deals with the SEC’s lawsuit could be helpful as well. The SEC has said it would oppose any motion brought by Coinbase seeking to dismiss the commission’s lawsuit.

“Any update related to Coinbase’s regulatory issues would be of great interest,” Miller said. “But I’m not really expecting anything material to come out with earnings.”


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