Coinbase Investors Prepare for Another Likely Disappointing Quarter

Coinbase (COIN) shares were down about 3.5% Friday, faring better than many of its crypto stock peers as the overall tech sector was hit hard and the price of bitcoin fell 1% over the past 24 hours. MicroStrategy (MSTR) was down almost 8.5%, while miners such as Marathon Digital (MARA) and Argo Blockhain (ARBK) were down more than 6% each.

But investors in Coinbase will likely have to prepare themselves for another lackluster round of quarterly results from the U.S.-based crypto exchange when it posts its fourth-quarter and yearly 2023 earnings report on Tuesday after the market close.

Analysts surveyed by FactSet anticipate Coinbase’s revenue fell to $589 million in the final quarter of the year, down just a hair from the $590 million reported in the previous quarter, which was already crippled from negative sentiment in the crypto space following the bankruptcy of crypto lender Celsius Network in July.

“We think fourth-quarter [earnings] and 2023 guidance are likely to disappoint, and we see little risk of the stock getting away from us at least around earnings,” Chris Brendler of D.A. Davidson wrote in a note Thursday. Brendler downgraded shares of Coinbase from buy to neutral because he thinks a breather may be in order after the stock almost doubled in value so far this year.

As for full-year results, Coinbase CEO Brian Armstrong said in December the company’s revenue will be half or less of what it was in 2021. The crypto exchange has struggled amid sharp price drops in cryptocurrency prices and continuing ripple effects from the collapse of rival exchange FTX.

Analyst estimates for Coinbase’s annual revenue in 2022 are currently set for $3.1 billion, which would be a 61% drop from the previous year.

“​​Anyone trading Coinbase shares should buckle up for this upcoming earnings report,” said Oanda’s Edward Moya. “Option activity implies we will once again see a major move following the earnings release. A near 20% move could occur following their results and earnings call.”

Expectations for 2023

Investors will be especially looking for more guidance on what 2023 holds for the exchange, given the tumultuous start to the year for the crypto industry.

Crypto-related assets including Coinbase have rallied significantly so far in 2023. COIN is up over 95% year to date while bitcoin (BTC) crossed the $25,000 mark for the first time in six months on Thursday. For the year, bitcoin is up 47%, while the CoinDesk Market Index (CMI) is up more than 46% for the year.

But regulatory actions by the U.S. government – including the Securities and Exchange Commission’s (SEC) shutdown of Kraken’s staking service in the U.S. as well as the Commission’s plan to sue Paxos for allegedly selling BUSD as an unregistered security – have cast a shadow over the industry’s recent bull run.

“We would expect regulation to be at the forefront of this earnings call,” Needham analyst John Todardo told CoinDesk. “The main focus will be on staking as well as [stablecoin] USDC as both segments saw regulatory read-throughs recently.”

JPMorgan analysts on Friday cut their price target for Coinbase shares from $60 to $52 due to ongoing regulatory risks to the company’s digital-focused businesses, including staking, USDC stablecoin and custody. The Wall Street bank wrote that it sees Coinbase’s staking business particularly at risk because it had anticipated Coinbase would auto-enroll its clients in Ethereum staking following the Shanghai Fork in March, which would have the potential to increase the exchange’s revenue by up to $1 billion.

SEC Chair Gary Gensler warned other platforms could be subject to investigations into their staking services, which could include Coinbase. The exchange’s staking business has potential for speedy growth if the SEC doesn’t crack down on the service.

However, Coinbase Chief Legal Officer Paul Grewal has argued that his exchange’s staking business is “fundamentally different” from Kraken’s.

Read more: Coinbase Cuts Around 20% of Workforce as Crypto Winter Rages

UPDATE (Feb. 21, 19:30 UTC): Updated with Tuesday stock performance of Coinbase and other crypto stocks.