Cryptocurrency exchange platform Coinbase Global, Inc. (NASDAQ:COIN) reported a wider-than-expected third-quarter loss and missed revenue expectations. However, monthly transacting users (MTUs) came in at 8.5 million, better than the Bloomberg consensus estimate of 7.84 million. Also, the company was able to control operating expenses reasonably well, resulting in a sequential improvement in both Net loss and adjusted EBITDA (earnings before interest tax depreciation and amortization).
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Coinbase said that during Q3, retail users preferred “hodl’ing” (buy and hold) cryptocurrencies instead of trading, thus resulting in lower trading volumes both sequentially and year-over-year. Bitcoin (BTC-USD) contributed 31% of total trading volume and 31% of transaction revenue. Meanwhile, Ethereum (ETH-USD) represented 33% of the trading volume but only 24% of transaction revenue.
Despite the weak results, the positive news on expense reduction and user base retention pushed COIN stock up over 8% in after-hours trading on November 3. The stock lost 8.1% in intraday trading yesterday in anticipation of the results. Amid the crypto winter, an unfavorable macro backdrop, and volatility in crypto prices, COIN stock has lost 77.8% so far this year.
Coinbase Q3 Results in Detail
Coinbase posted a diluted loss of $2.43 per share, worse than the consensus of $2.38 per share. The company had reported a diluted profit of $1.62 per share in the prior year period.
Meanwhile, total revenue collapsed 55% year-over-year to $590.34 million and came in significantly lower than the consensus of $653.58 million. The weak revenue performance was due to a 66.5% fall in Transaction-based revenue to $365.9 million. Nonetheless, Subscription and services revenue increased both sequentially and year-over-year to $210.5 million, thanks to rising interest rates.
In its shareholder letter, Coinbase said, “Q3 was a mixed quarter for Coinbase. Transaction revenue was significantly impacted by stronger macroeconomic and crypto market headwinds, as well as trading volume moving offshore. Meanwhile, we saw strong growth in our subscription and services revenue, driven by our participation in the USDC ecosystem and higher staking activity.”
For the full year of Fiscal 2022, Coinbase expects annual average MTUs to be slightly below 9.0 million and Average Transaction Revenue Per User (ATRPU) to be around $20, lower than the Q3 figure of $24. Also, subscription and services revenue is projected to exceed $700 million, owing to a favorable interest rate environment.
Is Coinbase a Buy or a Sell?
Mizuho Securities analyst Dan Dolev reiterated a Hold rating on COIN stock following the Q3 results. The analyst has a $42 price target on COIN, which implies a whopping 24.7% downside potential to current levels. Dolev’s price target calculation is based on 7x its 2024 expected EBITDA projection.
Despite the macro headwinds, Dolev believes Coinbase’s real challenge is share loss to competitors’ platforms. Having said that, the analyst appreciates that the company is meeting its own guidance on users and volumes.
Overall, Wall Street analysts have a Hold consensus rating on COIN stock. On TipRanks, the average Coinbase Global price forecast of $83.18 implies 49.1% upside potential to current levels.
Parting Thoughts
Coinbase Global’s MTUs retention number was well received by the market, despite the earnings miss. Having said that, near-term challenges from the hodl’ing of cryptocurrencies and the prolonged crypto winter seem to be lowering the appeal of the stock. Analysts also prefer to wait on the sidelines. Investors may want to sit out a couple of quarters until the headwinds clear and more clarity on Coinbase’s future potential appears.
