Coinbase earnings prep: Profitability Likely in Q4

Bittime - There is a possibility that profit will come from Coinbase earnings. But, it's still a possibility. Read the latest news here.

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While Coinbase is expected to report quarter-over-quarter gains amid the latest crypto price rally, analysts are looking forward to further guidance on whether the company can maintain its recovery momentum.

The crypto exchange will announce its fourth-quarter financial results on Thursday, and analysts will be watching to see whether the company managed to turn a profit during the final three months of the year.

"There are expectations that Coinbase will experience a significant recovery in its trading revenue, with potential gains visible during the quarter," said Morningstar analyst Michael Miller. "The rise in crypto prices has resulted in increased trading volume, which is expected to be a key driver for Coinbase."

Bitcoin (BTC) prices saw an increase of more than 50% during the fourth quarter before the US Securities and Exchange Commission approved the first US spot bitcoin ETF on January 10.

BTC's value surpassed $44,000 in early December, an increase of around 25% in a 30-day period. The value of the asset surpassed $50,000 on Monday.

"The increase occurred in the middle of the quarter, so Coinbase may not have felt the full benefit [in Q4]," Miller told Blockworks. "That said, I expect that the fourth quarter will show much better performance than the previous quarter."

Coinbase's transaction revenue in the third quarter was $289 million, marking a 12% decline from the previous quarter. 

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However, the company's earnings before interest, taxes, depreciation and amortization (EBITDA) remained positive sequentially in the third quarter, reaching $181 million.

Owen Lau, an executive director at Oppenheimer and Co., estimates that Coinbase's revenue will increase by 16% from the previous quarter, rising from $674 million to $784 million.

Lau projected that the company's trading volume from October to December would reach $145 billion, representing an increase of about 90% from the previous quarter.

In his January research note, Lau stressed that Coinbase had a good chance of posting positive earnings per share (EPS) based on generally accepted accounting principles (GAAP) for the first time since the fourth quarter of 2021.

“Coinbase is generally considered a company that has yet to make a profit,” Lau told Blockworks. “Positive GAAP EPS could help change this perception.”

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Things to Pay Attention to

Although analysts predict that Coinbase trading volume will increase significantly quarter-on-quarter, Lau stated that he will monitor the development of the volume throughout 2024.

According to Miller, the average price in trading is also an important factor, as the fees paid by users vary. Retail traders typically pay more than institutional traders, and these fees also vary based on trading volume.

"While we know that Coinbase has benefited from a stronger cryptocurrency market environment, the degree of benefit experienced depends entirely on the origin of the additional trading volume," said Miller.

Lau will also note comments from Coinbase executives regarding the impact the recent launch of a US spot bitcoin ETF will have on the company, as well as the possible impact if an Ethereum ETF also gets regulatory approval.

According to analysts from JPMorgan, Coinbase serves as custodian for most of the funds, and is expected to have a similar role in terms of oversight, custodianship, and trading for the Ethereum ETF, as explained in a research report on January 22. 

JPMorgan downgraded Coinbase to “underweight” in the report, calling the still-limited flow of funds to bitcoin ETFs on Feb. 9 “disappointing” when compared with the high expectations of many in the crypto industry before the approval.

CFRA Research also downgraded Coinbase last month over concerns about possible trading fee cuts the company would have to make to remain competitive with new, lower-fee bitcoin spot funds.

Lau also stated that he would monitor Thursday's call for the latest updates on developments in the company's legal case with the SEC. 

While the SEC has accused Coinbase of being an unregistered securities exchange, the company has attempted to reject those allegations, which it previously denied, and challenge them.”

Additionally, information regarding derivative products on Coinbase or international expansion efforts would be invaluable," Miller said.

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