Falling Crypto Prices Cut Into Coinbase Results
The biggest takeaway from Coinbase Global's (NASDAQ:COIN) results is that falling cryptocurrency prices cut into the results. Our reaction to that was, “have you seen cryptocurrency prices today?” meaning the market has come back and come back strongly. With share prices down on weaker than expected revenue and the two largest cryptocurrencies by market cap, Bitcoin and Ethereum, trading at all-time highs, we expect to see Coinbase results bounce back just as strongly. If you’ve been waiting for a chance to get into this highly-speculative name, we think this could be a good time to do it.
“While we entered Q3 with softer crypto market conditions, driven by low volatility and declining crypto asset prices, market conditions improved meaningfully later in the quarter which we have continued to see into early Q4. This backdrop led to global crypto spot trading volumes declining 37% in Q3 as compared to Q2.”
Mixed Results Weigh On Coinbase
Coinbase reported mixed results in relation to the analysts but we don’t think it matters. The company’s revenue missed the consensus estimate by 1700 basis points but the range of targets was so wide the group of analysts didn’t really know what to expect. Looking at the $1.31 billion in revenue from another angle, it is down significantly from Q2 but still up more than 315% from last year. That is strong growth. The sequential decline is due to a 16% decline in monthly active users and a 30% decline in trading volume. Notably, the amount of assets held on the platform is up 42% from last year.
Moving down to the bottom line, the company reported $1.62 in GAAP earnings which is down from last year but beat the consensus estimate by nearly $0.20. Earnings strength was driven primarily by corporate thrift as most of the operating expenses were cut over the past year. In our view, this is great news because it sets the company up with added earnings leverage when cryptocurrency prices, volatility, and trading volume picks up again.
The Analysts Are Pushing Coinbase Higher
There have been only four analysts’ notes out since the earnings release, but they and the underlying trend in sentiment are bullish. Not only are more analysts getting on board the Coinbase bandwagon, but they’re upping their ratings and their targets. The four recent shout-outs all rate the stock a buy and include 4 price target increases and one upgrade to Outperform.
While there was some negative chatter out of the crowd, no analysts downgraded or lowered a price target. The new Marketbeat.com consensus is just over $382 or about 14% upside and is itself up nearly 1000 basis points in the last month. We think the consensus rating will continue to improve, as will the consensus price target.
The Technical Outlook: Coinbase Falls To Support
Shares of Coinbase fell as much as 10% in the wake of the Q3 report but have since confirmed support at the $325 level. Price action is moving up from this level and will likely continue higher if after a period of consolidation. The outlook for Coinbase earnings and revenue is tied tightly to Bitcoin and Ethereum prices and those two cryptocurrencies are trading at all-time highs. If our assessment of the cryptocurrency market is even half right, Bitcoin and Ethereum will continue to set new highs and pull Coinbase up with them.
