Coinbase: Crypto Q2 Doesn’t Look Good (COIN)

[ad_1]

spawn

One of the biggest gainers this earnings season has been Coinbase (NASDAQ:COIN). Shares of the cryptocurrency platform surged after the company smashed Street estimates on the upper and lower lines. While the first quarter of this year was certainly much stronger than expected, there were some troubling signs in the crypto space during the first half of the second quarter.

Coinbase reported net revenue of over $736 million for the first quarter. Although that figure was down nearly $430 million from the year-ago period, analysts had expected revenue to be around $650 million. This was the strongest quarter of the past three as transaction revenue and subscription/service revenue both grew well on a sequential basis. The chart below shows the overall revenue distribution.

Quarterly Revenue Breakdown (Letter to Company Shareholders)

Coinbase has also done a terrific job of reducing its spending base. In the prior year period, transaction, sales and marketing expenses accounted for more than 40% of net revenue. In the first quarter of 2023, the number almost halved to around 22%. Other operating expenses like technology and general expenses also fell significantly, with the number of employees down more than 28.5% year-over-year. Even with more than $144 million in restructuring expenses booked for the period, the second-quarter net loss improved to less than $79 million from nearly $430 million a year earlier.

For the second quarter, however, things are not looking so rosy. The subscription and services revenue forecast is approximately $300 million, which would be down more than $60 million on a sequential basis. Coinbase management noted in the shareholder letter that USDC’s average April market capitalization was $31.7 billion, 23% below the first-quarter average of $41.3 billion. USDC is a key driver of interest income, and the latest data now has that market cap below $30 billion and falling almost daily.

Management also said it generated around $110 million in trading revenue in April as volatility in crypto assets declined. In the first quarter, this segment of the business averaged about $125 million in revenue per month. There is cause for concern here, for example, as Bitcoin trading volumes are not looking good at the moment. As the chart below shows, the average daily volume for the flagship cryptocurrency actually kicked off for the first 11 days of the quarter, but has since deteriorated. The quarter-over-quarter decline was 24.54% through Day 33 (which would represent the eve of Coinbase’s first quarter), but that number is now over 27%.

Daily Bitcoin Volume (Yahoo)

I mention these recent trends because it seems that analysts’ estimates are a bit high at the moment. Given what management has been guiding and the continued decline in USDC market capitalization and Bitcoin volume since, it would appear that Coinbase is on track for Q2 revenue printing in the low range. average of $600 million. As of Tuesday, May 16, the average analyst estimate for the quarter was $686 million, which would certainly favor the bear camp.

Even though Coinbase shares are about $5 off last week’s high, they are still up about 20% from where they were in the Q1 report. The 50-day moving average is around $3 above current levels, and this key technical line could be one of the major resistances going forward. Ultimately, Q2 trends for crypto haven’t looked good so far, so Coinbase investors should tread carefully unless we see some of these key things improving in the future. the second half of the quarter.

[ad_2]