Coinbase Q3 earnings preview: Where next for COIN stock?

When will Coinbase report Q3 earnings?

Coinbase will report third quarter earnings after markets close on Thursday November 3. Management will hold a question-and-answer session at 1430 PT on the same day.

Coinbase Q3 earnings consensus

Wall Street forecasts revenue will come in at $649 million in the third quarter, just half of what was delivered last year. Adjusted Ebitda – its headline measure – is expected to come in at a $213 million loss and turn from the $618 million profit delivered a year ago.

Coinbase is expected to swing to a $559 million net loss at the bottom-line from the $406 million profit delivered the year before.

Coinbase Q3 earnings preview

It will be another tough quarter for Coinbase.

Cryptocurrency prices remain nowhere near the levels we saw this time last year. Bitcoin has recently recaptured the $20,000 mark for the first time in weeks but is still just one-third of the $60,000 it traded at this time last year. Ethereum has also recently hit its highest level in over six weeks but trades at less than half where it sat a year ago.

Softer prices and lower levels of volatility have discouraged retail traders from trading cryptocurrencies in 2022 and resulted in less activity on Coinbase’s platform.

Coinbase has already warned that it expects Monthly Transacting Users (MTUs) to fall in the third quarter after seeing them drop to 8.0 million in July, with markets forecasting a further slide in the subsequent months to end the third quarter with 7.8 million of them on its platform. That is expected to lead to trading volumes of $161 billion, just half of what we saw this time last year and down 25% from the previous quarter.

(Source: Estimates from Bloomberg)

Notably, Coinbase has continued to grow its overall user base even if the level of activity on the platform has collapsed. It surpassed the 100 million mark for the first time in the last quarter and ended the period with 103 million verified users on its books. That prompted it to outline a new goal to introduce cryptocurrency trading to another 100 million users to its platform over the long-term. Including its growing array of other financial products, Coinbase believes it can ultimately help 1 billion people access the financial system.

Analysts believe revenue will halve in the third quarter from last year and fall 18% from sequentially. With trading activity under pressure amid volatile markets and an uncertain outlook, investors will be hoping that Coinbase’s subscription and services can gain momentum as it seeks to find more reliable sources of income. We should see this continue to gradually improve and analysts are looking for $164 million of sales. This is increasingly important as it looks to diversify income and wean itself off relying on trading volumes. 

Coinbase has warned it will remain in the red in what is proving to be an extremely tough 2022, but said it is aiming to limit its adjusted Ebitda loss to $500 million over the full year – which will be a tough sum to swallow after the company delivered over $4 billion of earnings in 2021.

This will require a sharp focus on costs to minimise losses and cash burn. Transaction expenses are expected to equal just over 20% of net revenue in the third quarter, down from 21% in the second.

We saw Coinbase layoff 1,100 workers back in June, representing around 18% of its workforce after realising it became too bloated during the better times seen in 2021, and it is limiting new hires and scaling back on costly media advertising and sales incentives. Sales and marketing costs are expected to fall to $107 million this quarter as a result, equalling around 16.5% of net revenue compared to 18% in the second quarter.

Coinbase will issue its outlook for the current quarter that will round off 2022 when it releases results. Wall Street believes MTUs will start to grow again in the fourth quarter and end the year at 8.3 million, underpinned by hopes that the recent rise in cryptocurrency prices may encourage more trading, although that will still trail 27% from where it started 2022. This should lead to a rebound in trading volumes and suggests there is hope among the markets that the third quarter could be the trough and that it can start to build momentum again as we enter 2023.

CEO Brian Armstrong has warned the economic downturn that is plaguing financial markets could lead to ‘another crypto winter’ that could ‘last for an extended period’. However, it will be coming up against much weaker comparatives next year and Wall Street hopes it can escape the red at the adjusted Ebitda level in the second quarter of 2023 and stay in the black for the remainder of the year.

Where next for COIN stock?

Coinbase shares have been wedged in a narrow band since the middle of September. The stock has tried and failed to close above the $76 mark on several occasions during this time, while $61 has proven a reliable level of support.

We are looking for a breakout as a result and the upcoming earnings could provide the necessary catalyst.

Any renewed pressure could see the stock tumble toward the $51.50 level of support we saw in July, which is the last line of defence before the all-time closing-low of $46 comes back into play. We will be in unknown territory beyond here.

A break above the current ceiling will allow it to target the September-peak of $83. From here, a bigger jump toward $113 will be on the cards.

Notably, the 28 brokers that cover Coinbase currently have an average target price of $95, implying there is 39% potential upside from current levels. However, this has fallen from over $113 just three months ago. The most recent adjustments suggest this trend could continue considering Compass Point slashed its target price to $75 from $95 last week, with Barclays setting its price target at $77 earlier in October.

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