Coinbase Earnings Preview: Trading Interest Has Eroded (NASDAQ:COIN)

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Coinbase (NASDAQ:COIN), the crypto and now NFT broker and custodian, reports after the closing bell on Tuesday, May 10th, 2022, with consensus expectations per IBES by Refinitiv expecting $0.18 per share on $1.48 billion in revenue for “expected” y.y declines of -94% and -18% respectively. ( consensus is expecting $0.86 in EPS on $1.48 billion in revenue, which is the eps estimate that was expected for Q1 ’22 just after Q4 ’21 was reported. In this case, I’d tend to think the IBES estimate is more current and credible.)

There is a whole host of issues impacting COIN currently much like the stock market itself:

1.) COIN came public in April of ’21 thus the comparison is awful: COIN printed $1.8 million in revenue and earned $3.06 in Q1 ’21 as Bitcoin was nearing it’s all-time-high of $66,000. COIN’s quarterly revenue and EPS peaked in Q2 ’22 at $2.2 bl in revenue and $6.47 in earnings per share.

For all of 2021, COIN printed $12.93 in EPS on $7.3 billion in revenue (its first year as a public company) and for ’22, the full-year consensus is $1.14 on $6.6 billion in revenue.

2.) Bitcoin has been locked in a trading range between $66,000 and the high $20,000’s the last 12 months, hence trading the alternative asset has lost it’s luster for many of the newly-minted crypto-ites;

3.) Gary Gensler with his new position in the SEC under the Biden Administration, has taken a special interest in Bitcoin and crypto (and along with that Coinbase), thanks to rampant fraud in the new version of the wild, wild west.

4.) A unicorn type business model and a disruptive company trading at 6x revenue and 75x expected EPS just isn’t going to get any kind of multiple expansion that it saw in 2021 in the 2022 stock and bond markets.

EPS and revenue estimate revisions

The spreadsheet for estimate aggregation from IBES / Refinitiv is not populating correctly so let me give the gritty detail for COIN’s EPS and revenue revisions:

  • On 12/31/21, the full-year ’22 EPS estimate was expected at $6.99, but today that number is $1.14;
  • On 12/31/21, the full-year 2023 EPS estimate was expected at $6.85, but today that estimate is $3.84;
  • On 12/31/21, the full-year revenue estimate for 2022 was $7.15 billion, while the full-year ’22 revenue estimate today is $6.6 billion;
  • On 12/31/21, the full-year revenue estimate for 2023 was $7.9 billion, today that same number is $8.1 billion, so that’s the first metric to show an improvement.

The value proposition around Coinbase Global is that “digital assets” are in the top of the first inning of a 9-inning ballgame and COIN is the largest broker / custodian to that market “with broad-based infrastructure to support the crypto economy” (a quote from a Canaccord report).

The addition of CoinbaseNFT is expected to be a plus.

Summary / conclusion

2021 was a completely outlier year for Coinbase given the frenzy and the move in Bitcoin to $66,000 and the rest of the frenzy around crypto at the same time as well as the IPO.

Listening to Warren Buffett talk about Bitcoin and crypto, I can’t blame him for his conclusions since Bitcoin and crypto have no traditional “store of value”. However the fact that bitcoin and crypto are growing as “mediums of exchange” ultimately implies some value. If the world started trading baseball cards or football jerseys to the same degree, than a consistent “medium of exchange” also has to have some store of value.

From a portfolio construction standpoint, the corrections in Bitcoin are horrific: I thought that at one point in 2017 BTC hit $20,000 and then traded all the way down to $2,000 before it took off again. A business like Coinbase whose revenues are tied to that volatility will be volatile as well.

The CFA Society of Chicago did a webinar on the Blockchain and one of the commentators – one of the founders of Soldana I believe – noted that 99% of all coins will be worthless in 3 years. That’s a pretty damning statement for the asset class.

Two articles were written on COIN for Seeking Alpha readers in 2021 (here and here). A small position was bought for clients but sold last week at $130. As someone who survived 2000 through 2002, keeping positions small can reduce risk of speculative positions and limit price damage.

I do think the development of institutional market on a broader basis will aid Coinbase but the stock and business today is reminiscent of the discount brokers in the late 1990’s (i.e. Schwab, TD Ameritrade, E-Trade, etc.) thus when retail volume dried up and the markets got far less interesting, the stocks of those companies got hammered.

This is not the kind of stock that will be rewarded in a market like this.