Analyst Note| Michael Miller |
No-moat Coinbase reported strong second-quarter results with earnings of $6.42 per share and net revenue of $2.23 billion coming in above our expectations. Earnings benefited from a tax benefit of $737 million as a result of tax deductions associated with the company’s direct listing. Strong cryptocurrency prices during the quarter drove total trading volume to a new all-time high of $462 billion, 38% more than last quarter. However, Coinbase relies on retail traders for most of its revenue, a consequence of the higher fees they pay, and retail trading volume growth of 21% meant that transaction revenue grew only 25% from last quarter to $1.93 billion. While impressive, these results do not materially alter our long-term projections for Coinbase, as they depend more on the adoption of cryptocurrency as a new asset class than the amount of trading volume that occurs in any individual quarter. That said, the strength of Coinbase's performance during the quarter, as well as continued cryptocurrency volatility since the end of June, has led us to increase our short-term expectations and increase our fair value estimate to $201 per share from $194.