Wall Street analysts have offered a range of perspectives on Coinbase (COIN) following its recent first-quarter earnings report which did not meet expectations and was accompanied by a significant $2.9 billion acquisition. While some analysts downgraded their near-term forecasts, others were more optimistic, highlighting potential long-term benefits.
Barclay’s Benjamin Buddish expressed cautious sentiment, noting that the “Q1 results came in a bit below expectations,” mainly due to softer crypto markets impacting forward-looking guidance for subscription and service revenues. Despite these challenges, he maintained an “equal weight” rating, pointing out favorable market share gains in both spot and futures trading.
Coinbase reported a larger-than-expected 12% drop in revenue compared to the previous quarter, landing at $2.03 billion. Transaction revenue was particularly concerning, plummeting nearly 19% to $1.3 billion, prompting several analysts, including those from Keefe, Bruyette & Woods and JPMorgan, to revise their second-quarter and full-year projections downwards due to declining fee rates and reduced institutional activity.
While retail trading remained steady, the exchange saw a notable decline in institutional revenue. JPMorgan flagged a 30% quarter-over-quarter drop in institutional volume and a decline in institutional fees from 4.1 to 3.1 basis points, highlighting the impact of incentives and increased high-frequency trading.
In stark contrast, Coinbase’s recent $2.9 billion acquisition of Deribit, a leading global crypto derivatives exchange, has been perceived as a strategic move toward future growth in the derivatives market. The anticipated completion of this deal by the year’s end has garnered positive attention, with Bernstein praising the valuation as fair considering Deribit’s impressive $1.2 trillion annual volume and $30 billion in open interest. Canaccord Genuity also applauded the acquisition, arguing that it reinforces Coinbase’s international presence and positions the company favorably for the potential U.S. regulatory approval of crypto options.
As trading revenue struggles, Coinbase is tapping into alternative growth avenues. Subscription and services revenue increased by 9% to $698 million, aided by a boost in stablecoin adoption. Notably, USDC balances on the platform surged by nearly 50% to $12.3 billion, while off-platform balances rose 39% to $42 billion. Analysts at Canaccord reported that average balances per user have tripled since June 2023.
Coinbase’s strategy includes enhancing its “Coinbase as a service” model, which provides white-label infrastructure for institutions entering the crypto market. Analysts at Canaccord suggest this could serve as a vital revenue stream, helping to mitigate the impacts of fluctuating trading cycles. They indicated a shift towards a buy versus build strategy may be emerging within the industry, further solidifying Coinbase’s market position.
Oppenheimer and Barclays pointed to broader macroeconomic risks, such as tariff uncertainty and weak investor sentiment, which have contributed to declining transaction volumes in April and May. Additionally, setbacks regarding regulatory clarity were noted, particularly with the recent block of the GENIUS Act—a Senate bill focused on stablecoins. However, JPMorgan remains hopeful that legislative progress could resume before the August recess.
Despite the immediate challenges posed by low volumes and squeezed fees, many analysts maintain that Coinbase is well-positioned for the long-term. They emphasize the company’s expansive product offerings, strong market presence, and first-mover advantage in derivatives and infrastructure as key factors for future resilience.
As articulated by Canaccord, Coinbase continues to be seen as the “gold standard” for both institutional and retail investors engaging in digital assets, a notable accomplishment in a fluctuating market landscape.
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