Coinbase's 'Solid' Earnings May Get Derailed by Low Volume, Fed Headwinds, Analysts Say

Wall Street analysts characterized Coinbase’s (COIN) second-quarter earnings as ‘solid’, given the industry's downtick in trading volume - the exchange’s biggest source of income historically.

“It was a solid quarter in what was a far less robust market than we witnessed in 1Q24,” J.P. Morgan analysts wrote in a note on Friday. The bank maintained its neutral rating on the stock.

Similarly, Oppenheimer analyst Owen Lau, who rates the crypto exchange outperform, wrote: “We believe COIN has found the formula to remain profitable despite earnings volatility, and be a resounding leader in this space.”

The San Francisco-based firm reported total revenue of $1.45 billion versus an average estimate of about $1.4 billion, according to FactSet data. Revenue from transaction fees slipped 27% from the previous quarter due to a 28% lower volume during the quarter.

Coinbase shares were down more than 3% as digital assets and broader equity markets fell on Friday.

Looking ahead, the company seems optimistic about some of its other ventures to bring in more capital, such as its offering of derivatives products and Coinbase Wallet, its self-custody wallet.

“Management indicated there are other revenue streams that are beginning to have an impact on the company's blended average take rate which are not included in spot trading volumes but are in revenues,” analysts at British bank Barclays, which maintains an “underweight” rating, noted.

Overall, the analysts got a positive sentiment from Coinbase’s management call which highlighted the expansion of several strategic growth initiatives and a more friendly political environment.

However, Oppenheimer’s Owen Lau notes that if the current trend continues, revenue in the third quarter will likely be lower than the previous quarter combined with likely lower interest rates by the Federal Reserve in October. Coinbase also predicted that operating expenses will remain high in the next quarter due to high spending in sales and marketing.

With the Federal Reserve hinting at rate cuts as early as September and recent employment numbers showing a softening job market, much of the exchange’s performance towards the end of the year could depend on the macroeconomic landscape.

“What will be interesting to see is whether crypto will be correlated with the stock market – which, if it is, then things could be seriously murky,” said Brian D. Evans, founder and CEO of venture capital firm BDE Ventures. “But if crypto shows a correlation with gold, then upwards should be the trajectory.”

“With these BTC and ETH ETFs in the U.S. and other markets, we could see the gold correlation actually play out, meaning that crypto could boom. This would be the perfect scenario for Coinbase, which experienced decent second-quarter numbers,” he said.

The U.S. added just 114,000 jobs in July, well below estimates of 175,000, with the unemployment rate rising to 4.3%, according to the Bureau of Labor Statistics.

As a result, the 10-year Treasury yield dropped 15 basis points to the lowest percentage since December, signaling markets fear a slowdown in economic growth.

The Federal Reserve is expected to lower interest rates during its meeting in September with traders betting on a 70% chance of a 50 basis point.