As Coinbase (COIN) approaches its first-quarter earnings report, anticipation is overshadowed by uncertainty. Four Wall Street analysts are bracing for disappointing results, anticipating a pressure on the crypto exchange’s most profitable business lines due to a notable retail trading lull.
Coinbase is set to unveil its first-quarter results on Thursday after the market closes. Analysts are projecting earnings per share (EPS) to decline to $1.93 from $2.26 in the fourth quarter, coupled with a revenue drop to $2.1 billion from $2.27 billion, as indicated by FactSet data.
Comparatively, in the same period last year, Coinbase reported an EPS of $4.40 and revenue of $1.2 billion. The expected trading volume is projected to hover around $403.8 billion, a decrease from $439 billion in the previous quarter.
J.P. Morgan has adjusted its EPS estimate downward to $1.59, citing a 10% dip in Coinbase’s trading volume and a 17% decline in total crypto market capitalization during the quarter. They project an adjusted EPS of $2.39 when accounting for losses in crypto assets, bolstered by controlled expenses and consistent subscription revenue.
Concerns are greater among analysts at Barclays and Compass Point, with Barclays slashing its revenue and EBITDA forecasts. They note a significant cooling in the market since January, despite growth in stablecoins. Barclays estimates retail volumes at $69 billion, falling significantly short of the average estimate of $79.8 billion.
Compass Point has taken a more pessimistic view, downgrading the stock to a sell rating and forecasting transaction revenue at $1.24 billion, which is 7% lower than the consensus estimate. They assert that Coinbase is losing its retail market share to decentralized exchanges (DEXs) and anticipate further difficulties in the upcoming second quarter.
In a recent report, popular trading platform Robinhood indicated a 13% decline in transaction-based revenue from the fourth quarter, reflecting the broader market cooling in the first three months of the year.
Stablecoins: A Glimmer of Hope?
Despite the prevailing challenges, there is a silver lining regarding stablecoins.
Coinbase has seen its revenue from USDC soar, with the stablecoin’s market capitalization climbing 42% during the quarter, which has in turn helped bolster its subscription revenue. Barclays estimates that USDC-related revenue may reach $304 million in the first quarter, and even the bearish Compass Point acknowledges that this influx has mitigated some of the declines in staking income due to the drop in ether’s price.
While Oppenheimer has reduced its volume forecast to $380 billion from $440 billion, they have acknowledged that Coinbase is gaining market share in U.S. spot trading, emerging as a positive indicator. However, this growth may prove inconsequential if retail traders remain inactive.
Furthermore, there are mounting concerns regarding long-term competitive pressures. Analysts have pointed out that decentralized exchanges, particularly those operating on faster and more cost-efficient blockchains like Solana and Coinbase’s own Base, are attracting retail users interested in trading a broader array of tokens. Although Coinbase has increased its U.S. market share, its traditional dominance as a centralized, regulated exchange may not suffice in countering this trend.
Looking forward, analysts urge caution, forecasting that a near-term rebound in trading activity could be sluggish. Retail traders often exhibit hesitance in re-engaging with the market until they see a recoup of previous losses.
Year-to-date, shares of Coinbase have declined by 23%, currently trading at $198.06, while Bitcoin has experienced a modest uptick of 3.8% since the beginning of the year, reaching $97,023.
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