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Stock Analyst Update

Coinbase Q2 Earnings Show Ongoing Pressure as Low Crypto Prices Drive Lower Trading Volume

No significant change expected to Coinbase stock’s fair value estimate of $110.

Coinbase Stock at a Glance

  • Current Morningstar Fair Value Estimate: $110
  • Coinbase Stock Star Rating: 3 Stars
  • Economic Moat Rating: None
  • Moat Trend Rating: Stable

Coinbase Earnings Update

As expected, no-moat Coinbase reported poor second-quarter results as weak cryptocurrency markets drove a sharp decline in trading activity on the company’s platform, particularly from its retail userbase, which provides the company with most of its revenue. Net revenue fell 60.5% from last year and 31.1% sequentially to $803 million, while net losses were $1.1 billion. Reported net income was affected by noncash impairment losses, mostly from the company’s cryptocurrency holdings, and adjusted net losses were $647 million. While these results are grim, we went into the quarter with low expectations and do not plan to materially alter our $110 fair value estimate for Coinbase.

Weak Crypto Prices Lead to Lower Trading Revenue

The main driver behind Coinbase’s revenue decline was lower transaction fees, as weak cryptocurrency prices and solvency issues among some cryptocurrency-focused firms and investments funds, like Celsius and Three Arrows Capital, had a chilling effect on retail interest in cryptocurrency. Coinbase’s retail trading volume, which generates 94% of the company’s transaction fees, fell 38% from last quarter and 68% year over year. This drove a 64% decrease in Coinbase’s trading revenue from last year to $655 million.

Engagement With Coinbase Platform Surprisingly Resilient

Despite the drop in trading volume, engagement with Coinbase’s platform was surprisingly resilient, with average monthly transacting users only down 2% sequentially. Coinbase did see a trend of its userbase shifting away from trading, hence the severe decline in trading revenue, toward utilizing Coinbase’s other services, primarily staking. As a result, Coinbase’s subscription and service revenue fared better than its trading revenue, increasing 44% year over year and only falling 3% quarter over quarter to $147 million. While these revenue sources do provide an offset to weak trading volume, transaction fees still make up more than 80% of Coinbase’s total revenue and we expect the company’s results to continue to be dependent on cryptocurrency market conditions.

Editor’s Note: This article has been updated to correct the name of the author of this story to Michael Miller.