Coinbase Q1 Profit Soars to $281M Amid Crypto Volatility

Key Takeaway

• Coinbase is expected to report a Q1 profit of $281 million, reversing a loss from the previous year, amid high trading volumes and app downloads.
• Despite a strong start to 2023, Coinbase's stock fell 23% in April as Bitcoin retreated 15%, raising concerns about future retail investor demand.
• The company's diversification into subscriptions and services, including revenue from USDC stablecoin, offers some protection against market volatility.

Coinbase's Q1 Earnings Surge

Coinbase Global Inc., the largest U.S. digital-asset trading platform, is anticipated to report a significant turnaround in its first-quarter earnings, swinging from a loss of $79 million in the previous year to a profit of $281 million, or $1.15 per share. This resurgence is attributed to a spike in trading volume and mobile-app downloads, fueled by the introduction of U.S. spot Bitcoin exchange-traded funds (ETFs). Revenue is expected to hit $1.32 billion, marking a 40% increase from $772.5 million in the same period last year. Owen Lau from Oppenheimer & Co., with an “outperform” rating on Coinbase, projects even higher revenue of $1.41 billion and a profit of $1.24 per share, citing a 100% increase in first-quarter trading volume year-over-year.

Market Volatility and Investor Concerns

Despite the optimistic forecasts, the volatile nature of cryptocurrencies, particularly Bitcoin, has raised concerns among analysts about the sustainability of investor interest. John Todaro of Needham & Co. highlighted the potential for a downturn in the second quarter, noting the possibility of reversing the retail user gains observed in Q1. This sentiment is reflected in Coinbase's stock performance, which, after a 50% surge in Q1, faced a 23% slump in April alongside Bitcoin's 15% retreat.

Diversification and Revenue Streams

Coinbase has diversified its revenue streams beyond mere transaction fees. The company now garners about half of its revenue from subscriptions and services, including earnings from the USDC stablecoin, which saw its market cap increase by 34% to $33.2 billion in the first quarter. This diversification, along with the ramp-up of Coinbase's derivatives trading and Base blockchain business, provides a buffer against the inherent volatility of crypto trading volumes.

Legal Battles and Market Outlook

Coinbase's ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) over various violations adds a layer of uncertainty to its future. However, the broader crypto market is also facing headwinds, with Bitcoin experiencing its worst monthly decline since the FTX crash in November 2022. The recent poor performance of spot ETFs in Hong Kong and heightened interest rate fears have contributed to a bearish outlook for cryptocurrencies, with Bitcoin tumbling below $60,000 and the total crypto market capitalization recording a significant decline.

Street Views

• John Todaro, Needham & Co. (Neutral on Coinbase):

  "The second quarter is shaping up weaker than Q1, and the recent crypto price pullback has the potential to completely unwind the retail user gains we saw."

• Owen Lau, Oppenheimer & Co. (Bullish on Coinbase):

  "First-quarter trading volume is up 100% year-over-year and quarter-over-quarter... The results should come in above expectations." "Coinbase’s subscription and services revenue has grown steadily, which can provide some downside protection to Coinbase’s total revenue."