Coinbase Q2 preview: Where next for COIN stock?

When will Coinbase release Q2 earnings?

Coinbase is scheduled to release second quarter earnings after US markets close on Tuesday August 9. The company will hold a Q&A session with investors at 1430 PT on the same day.

Coinbase Q2 earnings consensus

Wall Street forecasts Coinbase will report a 61% drop in revenue in the second quarter to $870.4 million. Analysts expect the company to sink to an adjusted Ebitda loss of $175 million and a net loss of $558.8 million.

Coinbase Q2 earnings preview

Coinbase has found 2022 difficult, having suffered as cryptocurrency prices have crashed this year whilst appetite for tech stocks has also waned. Revenue fell for the first time since it completed its IPO in 2021 when it released its first quarter results and it also booked its first net loss, and things could be even tougher in the second. Cryptocurrency prices have found even lower ground and many of the retail traders it proves so popular with are dealing with a cost-of-living crisis and a reduced appetite for risk given the uncertain economic outlook.

Bitcoin started the second quarter priced above $45,000 but this has plunged to below $20,000 by the end of the period. Other major cryptocurrencies have suffered a similar fate, with Ethereum having dropped from over $3,000 to just over $1,000 during the same timeframe.

Depressed prices and lower volatility compared to last year have both discouraged retail traders from trading cryptocurrencies in 2022, but Coinbase is aware that it will go through the crest and trough of what is still a nascent and rapidly-developing industry. However, the downturn has been more severe this year than Coinbase anticipated considering it announced it was cutting around 18% of its workforce, representing around 1,100 jobs, back in June. Coinbase admitted it was too ambitious in terms of hiring when the going was good in 2021 and only realised it was too bloated when the cryptocurrency market started to suffer in 2022.

‘You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us, because we’ve always taken a long-term perspective on crypto adoption. We may earn a profit when revenues are high, and we may lose money when revenues are low, but our goal is to roughly operate the company at break even, smoothed out over time, for the time being,’ Coinbase said when the downturn started to bite earlier this year.

This means user numbers will fall for a third consecutive quarter to just 8.4 million at the end of June, down from 9.2 million at the end of March and 11.4 million at the start of 2022. That will result in a dramatic drop in trading volumes, which are expected to more than halve from last year to $220.4 billion as both retail traders and institutional clients pullback. This will also contribute to a drop in the number of assets held on its platform to $164.5 billion, down 8.6% from the year before and marking a dramatic plunge from the $256.0 billion of assets on its books at the end of the first quarter.

Still, there are hopes the crypto market proved more resilient than anticipated during the second quarter following results out from trading platform Robinhood, when it said cryptocurrency transaction revenue rose 7% sequentially following the steep 39% drop reported in the first. That has provided scope for Coinbase to impress this week.

Coinbase is trying to make the best of lower volatility and activity in the cryptocurrency market by focusing on introducing new products, demonstrated by the launch of its Non-Fungible Token (NFT) platform and growing adoption of its cryptocurrency wallet. The company said over half of its users engaged with a non-investing product during the first quarter as it tries to widen the use case and importance of its platform. The most popular product has been staking, when users that own cryptocurrencies like Ethereum can ‘stake’ some of their holdings by putting them aside to earn rewards, much like people earn interest by placing money into deposit or savings accounts. Importantly, Coinbase has said users that stake are easier to retain than those that simply trade on its platform.

With trading activity under pressure amid volatile markets and an uncertain outlook, investors will be hoping that Coinbase’s subscription and services can gain momentum as it seeks to find more reliable sources of income. Subscription and service revenue is forecast to come in at $138.7 million in the second quarter, which would be up over 35% from last year but lower than what has been delivered in the last three quarters.

Coinbase has warned it will remain in the red in what is proving to be an extremely tough 2022, but said it is aiming to limit its adjusted Ebitda loss to $500 million over the full year – which will be a tough sum to swallow after the company delivered over $4 billion of earnings in 2021.

The outlook will largely depend on how crypto markets fare going forward. We have seen bitcoin, Ethereum and other cryptocurrencies find higher ground since the end of the second quarter, although they still significantly trail below where they sat at the start of 2022. CEO Brian Armstrong has warned the economic downturn that is plaguing financial markets could lead to ‘another crypto winter’ that could ‘last for an extended period’.

Where next for COIN stock?

Coinbase shares surpassed the $80 mark on Wednesday to close at their highest level in almost three months, although is set to open lower when markets open later today.

The stock has now gained ground for six consecutive sessions and looks to be gaining traction, supported by the bullish RSI. Notably, trading volumes had dipped during the first five sessions of the recent rise to suggest it was lacking momentum, but volumes on Wednesday spiked to more than double the 100-day average after Robinhood’s results reignited interest and they could remain elevated ahead of Coinbase’s earnings.

The mission today is to close above the $80 mark to keep up momentum. There is still a large amount of ground to make up to recapture the next upside target of $100, in-line with the 100-day moving average. Notably, the 26 brokers that cover Coinbase have an average target price of $113, suggesting it can recover the losses booked since it released its first quarter results back in May.

Investors will hope the 50-day moving average, currently sat at $61, can hold as a floor if Coinbase comes under renewed pressure. Below here, the $51.70 level of support seen in July comes back into play, which must hold if it is to avoid toying with the all-time closing low of $46 hit in June.

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