Coinbase: Trading Volume Estimates Point To Weak Q2 Earnings
Last week, analysts at Mizuho estimated that the trading volume on Coinbase Global, Inc.’s (NASDAQ: COIN) platform have fallen to about US$1.2 billion a day from a peak of nearly US$7 billion in November. Furthermore, the brokerage firm believes that Coinbase transactions represent only 2.9% of global cryptocurrency trading volume in July, down from 5.3% in 1Q 2022 and a high of 8%-9% in November 2021.
If these figures are true, one can make a rough estimate of their significant impact on Coinbase’s financials in 2Q 2022. Coinbase’s transaction revenue was US$1.013 billion in 1Q 2022. Since Coinbase charges a flat 1% fee on all cryptocurrency transactions, its transaction revenue is affected by both changes in trading volume and by variations in cryptocurrency prices.
For the first factor, we assume that Coinbase controlled 4.1% of all crypto transactions in 2Q 2022, the midpoint between a 5.3% share in 1Q 2022 and an estimated 2.9% share in July 2022. Assuming total global transaction volumes were about the same in 2Q 2022 as 1Q 2022, this suggests about a 23% reduction in Coinbase transaction revenues in 2Q 2022 versus 1Q 2022.
| (in millions of US dollars) | Jul-22 | 2Q 2022E | 1Q 2022 | 4Q 2021 |
| Trading Volume | $309,000 | $547,000 | ||
| Trading Volume Per Day | $1,200 | $3,433 | $5,946 | |
| Sequential % Change | -42.3% | |||
| Transaction Revenue (A) | $569 | $1,013 | $2,277 | |
| Sequential % Change | -43.8% | -55.5% | ||
| Market Share of Global Trading Volume, per Mizuho | 2.9% | 4.1% | 5.3% | 8%-9% in November 2021 |
| Approximate Bitcoin Average Price, in US Dollars | $20,500 | $30,000 | $41,331 | $56,010 |
| Sequential % Change | -27.4% | -26.2% |
Regarding the second factor, we assume that the change in the average transaction price of cryptocurrencies in 2Q 2022 compared with 1Q 2022 mirrors the change in price of the largest digital currency, Bitcoin. The average price of Bitcoin was about US$30,000 in 2Q 2022, down 27.4% from US$43,331 in 1Q 2022. So, it seems logical to conclude that Coinbase’s transaction revenue declined nearly 44% ([1 – 0.23] times [1 – 0.274] – 1) in 2Q 2022 to around US$570 million in the quarter ended June 30, 2022 from US$1.013 billion in 1Q 2022.
So, if no elements of Coinbase’s cost structure changed quarter-to-quarter, the company’s adjusted EBITDA could conceivably have fallen to a potential loss of US$420 million from positive US$20 million in 1Q 2021. Using the same logic, Coinbase’s pretax earnings may have fallen by the same ~US$440 million in 2Q 2022, which could suggest that the company’s EPS in the quarter was in the range of a loss of US$3.30 versus a loss of US$1.98 per share in 1Q 2022.
These cash flow and earnings figures would represent enormous shortfalls and would be noticeably worse than analysts’ consensus estimates. Furthermore, Coinbase’s cash position could take another substantial hit. Its cash balance fell to US$6.1 billion on March 31, 2022 from US$7.1 billion on December 31, 2021 when it reported 1Q 2022 adjusted EBITDA of positive US$20 million. An EBITDA figure in 2Q 2022 much worse than this could potentially cause cash on the balance sheet to decline to below US$5 billion as of June 30, 2022.
| (in millions of US dollars, except otherwise noted) | 2022E | 1Q 2022 | Full Year 2021 | 4Q 2021 | 3Q 2021 |
| Monthly Transacting Users, or MTUs (millions) | 5 to 15 | 9.2 | 8.4 | 11.4 | 7.4 |
| Retail Trading Volume | $74,000 | $535,000 | $177,000 | $93,000 | |
| Institutional Trading Volume | $235,000 | $1,136,000 | $371,000 | $234,000 | |
| Trading Volume | $309,000 | $1,671,000 | $547,000 | $327,000 | |
| Retail Assets on Platform | $123,000 | $141,000 | $141,000 | $116,000 | |
| Institutional Assets on Platform | $134,000 | $137,000 | $137,000 | $139,000 | |
| Total Assets on Platform | $256,000 | $278,000 | $278,000 | $255,000 | |
| Total Market Capitalization of All Crypto Assets | $2,321,000 | $2,321,000 | $2,090,000 | ||
| % on Coinbase Platform | 11.5% | 11.5% | 12.2% | ||
| Transaction Revenue | $1,013 | $6,837 | $2,277 | $1,090 | |
| Subscription/Services Revenue | $152 | $518 | $213 | $145 | |
| Net Revenue | $1,165 | $7,355 | $2,490 | $1,235 | |
| Retail Transaction Fee Revenue/Retail MTUs | ~$45 | $64 | |||
| Transaction Expenses as % of Net Revenue | Low 20% range | 24% | 17% | 20% | 16% |
| Sales & Marketing Expenses as % of Net Revenue | 12% to 15% | 17% | 9% | 10% | 9% |
| Technology and Development Plus G&A Expenses | $4,750 | $984 | $2,201 | $757 | $599 |
| Adjusted EBITDA | $20 | $4,090 | $1,205 | $618 | |
| Operating Cash Flow | ($830) | $10,730 | $2,993 | $342 | |
| Net Income | ($430) | $3,624 | $840 | $406 | |
| Cash, Including Digital Assets | $6,116 | $7,123 | $7,123 | $6,353 | |
| Debt – Period End | $3,486 | $3,491 | $3,491 | $3,496 | |
| Shares Outstanding (millions) | 261.9 | 261.9 | 261.9 | 261.9 |
Coinbase stock has been exceedingly weak, dropping 83% in almost a straight line since November 2021. If the company were to post 2Q 2022 results consistent with Mizuho’s trading projections, Coinbase shares could potentially face further selling pressure.
Coinbase Global, Inc. last traded at US$64.20 on the NASDAQ.
Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
