Coinbase's Weak Third Quarter May Not be the Bottom: Wall Street

Coinbase Global (COIN) missed earnings estimates this week – with trading volume in Q3 lower by 71% from the fourth quarter of 2021 – but interest income from USDC was a bright spot.

The company reported Q3 revenue of $576 million, down from $803 million a quarter earlier and $1.235 billion in Q3 one year ago. Adjusted EBITDA in Q3 was a loss of $116 million versus a loss of $151 million in Q2 and a profit of $618 million a year ago.

Trading volume in Q3 of $159 billion was down from $217 billion in Q2 and down 71% from $547 billion in Q4 of 2021.

Subscription revenue, however, rose to $211 million in Q3 from $147 million three months earlier. The largest contributor to that jump was interest income – which flowed through to Coinbase thanks to exposure to USD Coin (USDC) as well as interest earned on customer fiat deposits.

Wall Street’s Take

“We believe the visibility of COIN generating positive adjusted EBITDA in 2023 has increased, and its ability to diversify and generate non-trading revenue is still underappreciated,” Oppenheimer analyst Owen Lau said in a research note to clients late Thursday. Lau continued with an outperform rating on COIN and a $107 price target, or nearly double the current price of $57.

Others on Wall Street, though, continue to question Coinbase’s path to profitability.

“With the decline in trading volume, it looks like it will take longer to get to EBITDA positive, as Coinbase continues to invest in building out new products and services, in part supporting the growth of the crypto ecosystem,” JPMorgan analyst Kenneth Worthington said in a note to clients. JPMorgan has a neutral rating and $66 price target on the stock.

Canaccord's Joe Vafi was bit more constructive, telling clients Coinbase is "finding the right happy medium" with its realization that the cost structure needs to be managed as breakneck growth is in the past. "A steady cost lane may be the right balance for achieving a steady goal of growing competitively but efficiently," he wrote.

Coinbase wasn’t able to offer new 2023 guidance, but said it is “preparing with a conservative bias and assuming that the current macroeconomic headwinds will persist and possibly intensify.”

Read more: Coinbase Cuts Q3 Losses in Half, Sees Crypto Headwinds Continuing Into 2023