Coinbase Global stock slid Friday in the wake of first-quarter financial results from the cryptocurrency broker that were far better than expected. While the shares continue to trade as a proxy for crypto sentiment—and somewhat divorced from fundamentals—there remains a bearish case specific to the company.
Coinbase stock fell 3.5% in premarket trading on Friday after the shares advanced 8.9% on Thursday, before the release of first-quarter results. Coinbase reported earnings of $4.40 a share on revenue of $1.64 billion, blowing...
Coinbase Global stock slid Friday in the wake of first-quarter financial results from the cryptocurrency broker that were far better than expected. While the shares continue to trade as a proxy for crypto sentiment—and somewhat divorced from fundamentals—there remains a bearish case specific to the company.
Coinbase stock fell 3.5% in premarket trading on Friday after the shares advanced 8.9% on Thursday, before the release of first-quarter results. Coinbase reported earnings of $4.40 a share on revenue of $1.64 billion, blowing past estimates among analysts surveyed by FactSet of profit at $1.15 a share on revenue of $1.36 billion.
In some ways, the premarket move lower in Coinbase stock reflects the shares tracking the price of Bitcoin, which has tumbled this week. The price of the largest digital asset has fallen 6% since Monday, with Coinbase stock down some 1% over the same period as of Thursday’s close. The drop Friday will bring the two assets more in line.
Coinbase’s chief financial officer, Alesia Haas, told Barron’s in an interview earlier this year, “[our stock] is a reflection of the broader sentiment around the future of crypto more than a reflection of Coinbase financials or our near-term financial performance.”
The fact that Coinbase trades mostly as a crypto proxy can make it difficult to read into the fundamentals as they relate to the stock price. Consider the valuation: Coinbase shares trade at a forward price-to-earnings ratio above 50, a more than 200% premium to peers, according to FactSet data. Nevertheless, it’s worth considering the fundamentals after Coinbase’s results, especially given the negative market reaction.
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“[The first quarter] was strong but this was widely expected given the rise of Bitcoin and crypto volatility year-to-date,” Dan Dolev, an analyst at Mizuho Securities, wrote in a note. “While take rates [which are fees the broker charges on trades via the core brokerage business] were resilient (a positive), we still expect the stock to trade down.”
Dolev is a long-time Coinbase bear, rating the stock at Underperform with a $145 price target on the stock, which closed at $228.85 on Thursday. But his analysis of potential weakness highlighted by the results is still valuable.
For one, trading in altcoins—smaller cryptos—as well as interest-bearing staking services account for some 45% of total revenue, up from 42% in the fourth quarter of 2023 and 32% a year ago. Altcoins and staking are the subject of regulatory scrutiny, with Coinbase in a legal battle with the Securities and Exchange Commission over, among other things, the existential question of whether cryptos and related services are unregistered securities. The fact that these elements of the business are becoming more dominant raises the risk posed to revenue in a worst-case regulatory scenario.
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And Dolev isn’t the only one on Wall Street exhibiting caution over the regulatory picture.
“While we do believe Coinbase is positioned to be (and currently is) a dominant player among crypto native firms globally over the long term, we would like to see more progress on the regulatory front in the U.S. and a sustained turnaround in the underlying fundamentals of the business … before becoming more positive on Coinbase at its current valuation,” Patrick Moley, an analyst at Piper Sandler, wrote in a note. Piper Sandler rates Coinbase at Neutral with a $245 price target.
Coinbase also provided a second-quarter outlook that gave investors much to consider. The company said it generated more than $300 million in total transaction revenue, which, according to Dolev’s analysis, represents a second-quarter run rate that is 16% below first-quarter levels. This is an important point, because it relates to both Coinbase’s core brokerage business as well as crypto at-large.
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While Bitcoin had a phenomenal first quarter, surging amid the launch of spot Bitcoin exchange-traded funds (ETFs) and benefiting from anticipation of the “halving” that cut issuance of new tokens, enthusiasm has waned. Bitcoin ETFs have seen outflows and crypto prices have languished since Bitcoin hit a record high in mid-March.
Not only does this slowdown in crypto markets bode ill for Coinbase’s brokerage business, but it also suggests that the picture is darkening for overall crypto sentiment. And that’s really what would hit Coinbase stock.
Write to Jack Denton at jack.denton@barrons.com
