Coinbase continues to sink following disappointing Q2 earnings

Shares of Coinbase, the largest crypto exchange in the US, are continuing to plummet following disappointing second-quarter earnings that missed revenue expectations yesterday.

The stock was down more than 15% in Friday trading.

Beyond the overall revenue miss, transaction revenue was also down 39% quarter over quarter, at $764 million, while subscription and services revenue came in at $656 million, down 6% quarter over quarter.  

Interestingly, after Bitcoin with 30%, XRP was the token with the highest transaction revenue, with 13% of the total, surpassing ethereum’s share.

Coinbase also reported that it added 2,509 bitcoin in Q2, to return to the 10th spot in the corporate bitcoin holder leaderboard.

Alexander Blume, CEO of Two Prime, told Sherwood News that with all of the momentum in the industry and the price of bitcoin on the rise, it’s somewhat surprising that Coinbase fell short. 

“In truth, though, much of the industry activity has been solely around institutional bitcoin, with altcoins and ancillary offerings being less successful over the past quarter,” he said, adding that the industry is becoming more competitive as TradFi enters as well.

One area where the company performed well was stablecoins, bringing in $332.5 million in revenue, up from $297.5 million in the first quarter. The company also expects stablecoins to continue as a driving force in the next quarter.

Coinbase has a minority interest in Circle and also shares any Circle Reserve Fund income “not allocated to partners 50/50 with Circle.” Circle’s USDC has a $64 billion market cap and is the second-largest stablecoin. Of course, the GENIUS Act, signed into law on July 18, will also unlock  “new opportunities for Coinbase and reinforcing U.S. leadership in digital,” per the shareholder letter.

Anil K. Gupta, vice president of investor relations, said he expects Q3 revenue in the $665 million to $745 million range, up 8% quarter over quarter, “driven by higher average crypto prices and stablecoin revenues,” according to the earnings call transcript.

Mark Palmer, senior research analyst at Benchmark, told Sherwood that the company’s softer-than-expected revenue growth, especially in subscription and services, was masked to some extent by the positive impact of Circle and USDC’s uplift during the quarter.

“It did so just as the prices of bitcoin and other cryptocurrencies were trading down, apparently due to the Federal Reserve’s decision to hold off on cutting interest rates,” he said.

Palmer also said that Coinbase’s quarterly operating performance is subject to seasonality, and that the company’s Q2 results reflect a period before the GENIUS Act was signed into law and before the House of Representatives passed the CLARITY Act.

“If the CLARITY Act also becomes law, then I believe those two pieces of legislation will be game-changers for Coinbase and its operating prospects. Given the context of that huge potential upside, a reversal in Coinbase’s share price due to a quarterly miss on subscription and services revenue seems trivial,” Palmer added.