Coinbase Beats Estimates As Trading Volume Slumps. The Stock Is Falling.

Coinbase
(ticker: COIN) on Thursday disclosed a third-quarter loss of one cent per share, compared with the 55-cent loss expected by analysts, according to FactSet. The company had revenue of $674 million, compared to the consensus estimate of $651 million.

It was the seventh-straight quarter of losses for Coinbase, which has struggled in the wake of 2022’s crypto industry crash and dampened trading volumes.

Coinbase’s earnings were helped in part by increased “take rates” charged to retail traders, said Mizuho analyst Dan Dolev in an earnings note after the release. Those rising fees have also helped earnings in prior quarters, but Dolev and some other analysts have argued that the trend won’t last amid increased competition for traders with firms like
Robinhood Markets
(HOOD).

“Despite the ‘beat,’ we expect a muted stock reaction,” wrote Dolev, whose firm rates Coinbase “Underperform” with a $27 price target.

Still, Coinbase’s loss was much narrower than the second quarter’s per-share loss of 42 cents. In the third quarter of last year, the company lost $2.43 a share, when the crypto crash was deepening.

Critically, Coinbase and other trading platforms have seen less interest from retail investors. In the third quarter, Coinbase said it had $76 billion in total trading volume, compared to $92 billion in the second quarter and $159 billion in the third quarter last year.

The company said its gathered $289 million in transaction revenue in the quarter, as well as $105 million in October, after the quarter ended. Coinbase executives in the shareholder letter said October’s figure shouldn’t be extrapolated.

There are reasons for investors to be optimistic that the muted volumes and weak prices that dominated the crypto markets this summer are behind the company. Since the end of the third quarter, the price of Bitcoin has risen 29% to about $34,900. Trading platforms including Coinbase have also seen a rise in volume.

Coinbase Chief Financial Officer Alesia Haas in an interview pointed to speculation surrounding the potential approval of a spot Bitcoin exchange-traded fund as one of the drivers. While she declined to forecast whether the trading bump would last, Haas said there are other potential catalysts on the horizon that could continue to bring interest.

Among those are rising geopolitical tensions, which Haas said has attracted investors to Bitcoin as a store of value, and an upcoming 2024 change in the Bitcoin network-—called the “halving”—that in the past has correlated with crypto bull markets.

A potential Bitcoin ETF “reinforces the legitimacy of Bitcoin as an asset class” and could bring more institutional investors into crypto, Haas told Barron’s.

In addition to fighting to keep traders’ interest in crypto, Coinbase has been battling regulators. In June, the Securities and Exchange Commission sued the company accusing it of operating an unregistered securities exchange, a charge the company denies.

Coinbase has spent millions of dollars on a lobbying campaign to encourage lawmakers to pass legislation that company executives say would provide a clear path for crypto firms to operate legally in the U.S. While some of the bills have advanced through House or Senate committees, policy analysts say there’s little chance for them to become law anytime soon.

“Legislation takes time. We have to be patient,” said Haas of lawmakers’ legislative push, adding that she believes it’s “going to be a matter of ‘when,’ not ‘if’ we get legislation.”

Write to Joe Light at [email protected]