Coinbase Q4 beat called 'empty calories' as Wall Street wary of regulation, volumes

Coinbase (COIN) reported quarterly results on Tuesday that were better than feared, but several Wall Street analysts suggested Wednesday these results will do little to set aside fears the business remains under severe pressure during Crypto Winter.  


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Shares of the crypto exchange fell about 1.4% following these results. Coinbase shares have lost more than 80% from their record high reached in late 2021; still, the stock has nearly doubled year-to-date.

Coinbase’s beat on revenue was largely driven by interest income, the company’s major non-trading revenue driver which benefits from a revenue sharing agreement with stablecoin issuer Circle.

“Nothing thesis-changing in the print,” said Bank of America research Jason Kupferberg in a Wednesday note. Kupferberg’s team maintains an Underperform rating and a $35 price target on the stock. 

“Empty calories drive ‘beat’ … This is unlikely to be sustainable and is non-core to COIN, in our view,” said Mizuho analyst Dan Dolev, who also maintains an Underperform rating and a $30 price target. 

Bank of America called Coinbase’s interest income “lower quality revenue” as the benefit from higher interest rates don’t play into Coinbase’s business model. The team also wanted more forward guidance.

In the week leading up to Coinbase’s report, analysts had lowered expectations for the major U.S. exchange in light of recent SEC enforcement actions against competitor firms

Those actions obscure the growth potential for Coinbase’s non-trading side of the business.

Goldman Sachs, which has a Sell rating on the stock with a $42 price target, held out that the regulatory outlook could impede Coinbase and other U.S. crypto firms from rolling out new “regulatory compliant” products. 

More important than interest income are company’s transaction fees earned from its exchange business. Transaction fees came in $4 million shy of Wall Street expectations as retail trading activity plummeted. Volumes shrank 23% through the quarter and 88% from the previous year.

Despite the “muted volumes,” JPMorgan, which has a Neutral on Coinbase shares with a $57 price target, pointed out “2023 off to a better start.”

Coinbase generated $120 million in transaction revenue in January 2023 alone, CFO Aleisa Haas said on Tuesday’s call, suggesting a potential Q1 boost.

“Although underlying drivers were more mixed (interest income huge, Retail trading not), we believe these results are encouraging and materially improve the profit outlook,” said D.A. Davidson managing director Chris Brendler. Brendler’s team downgraded Coinbase a week ago but raised its price target to $60. 

Coinbase Chief Financial Officer Alesia Haas smiles during the 2021 Milken Institute Global Conference in Beverly Hills, California, U.S., October 18, 2021. REUTERS/David Swanson

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Coinbase Chief Financial Officer Alesia Haas smiles during the 2021 Milken Institute Global Conference in Beverly Hills, California, U.S., October 18, 2021. REUTERS/David Swanson

‘Adjusted EBITDA for all market conditions’

After laying off 2,110 employees in 2022, Coinbase narrowed its adjusted EBITDA loss more than Wall Street expected, reporting a loss of $347 million for the full-year against prior guidance for capping losses at $500 million for the year.

On Tuesday’s conference call, Coinbase management hammered home the objective to “generate adjusted EBITDA for all market conditions.”

Yet management stopped short of outright committing to positive adjusted EBITDA for 2023. Still, Devin Ryan of JMP Securities approved of the tone change. 

“Profitability focus a noticeable shift,” JMP said in a note.

“There are scenarios that we could be EBITDA positive this year. But the goal because we’re preparing for the worst and hoping for the best is to ensure that we improve EBITDA year over year and that is what we’re setting at this point in time,” Haas told investors. 

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