Coinbase Global Inc. COIN is expected to report an improvement in its top and bottom lines when it reports second-quarter 2024 results on Aug 1, after the closing bell.
The Zacks Consensus Estimate for COIN’s second-quarter revenues is pegged at $1.5 billion, indicating 104.9% growth from the year-ago reported figure.
The consensus estimate for earnings is pegged at $1.07 per share. The Zacks Consensus Estimate for COIN’s second-quarter earnings has moved down 0.3% in the past seven days. The estimate suggests year-over-year growth of 354.8%.
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Solid Earnings Surprise History
Coinbase’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 364.63%. This is depicted in the following chart.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Coinbase this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Coinbase has an Earnings ESP of -20.43%.
Zacks Rank: Coinbase currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Likely to Shape Q2 Results
The second-quarter performance of Coinbase is likely to have benefited from increased trading volume due to higher volatility. Crypto trading remains a major revenue driver of COIN. The Zacks Consensus Estimate for trading volume is pegged at 226.6 million.
Intensifying focus on international expansion, growing derivatives and spot trading and integration of USD Coin into the crypto economy are likely to have fueled the two largest revenue streams — trading fees and Stablecoins.
Transactions in the to-be-reported quarter are likely to have benefited from higher crypto asset volatility, coupled with improved crypto asset prices. The Zacks Consensus Estimate for transaction revenues is pegged at $784.2 million.
The company estimates second-quarter 2024 transaction expenses to be in the mid-teens as a percentage of net revenues.
Subscription and services revenues are likely to have benefited from stablecoin revenues, interest income and blockchain rewards. Given an improved interest rate environment, the momentum is here to stay. Coinbase estimates second-quarter subscription and services revenues to be between $525 million and $600 million, with crypto prices being the largest driver.
Coinbase estimates technology and development and general and administrative expenses in the second quarter to increase attributable to increased customer support and infrastructure expenses associated with higher trading volumes. It estimates the metric to be between $660 million and $710 million.
Also, given USDC customer rewards and seasonally higher NBA sponsorship-related spending, COIN expects sales and marketing expenses to grow considerably from the first quarter of 2024. COIN projects the metric to be between $150 million and $180 million.
Investments in technology to enhance operational efficiency and prudent expense management are likely to have lowered costs and improved margins.
Price Performance and Valuation
COIN shares have gained 146.3% in the past year compared with the industry’s growth of 11.7%.
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Coinbase’s stock is overvalued compared to its industry. It is currently trading at a price-to-earnings multiple of 60.27, higher than the industry average of 21.66.
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However, it is still cheaper than other industry players like Envestnet Inc. ENV and Fiserv Inc. FI, whose shares are trading at a price-to-book multiple of 30.91 and 16.83, respectively.
Investment Thesis
Coinbase looks poised to benefit from higher crypto asset volatility and crypto asset prices. It has been deepening its roots in international markets. Strengthening banking connections, locking of new licenses and expansion of tailor-made product ranges to meet unique customer preferences should aid COIN in scaling new heights in the long run.
Coincase has been investing in infrastructure and foundational platforms like Base, designed to optimize Ethereum's infrastructure by increasing the network’s speed and affordability.
Technology and development should continue to increase, primarily driven by higher variable expenses, as the company remains focused on accelerating growth via strategic initiatives. Nonetheless, COIN stays focused on maintaining a low-cost structure.
Return on capital, signifying the company’s ability to use shareholders' funds to generate returns, compares unfavorably with the industry average.
Though cash and cash equivalents have been improving, COIN’s debt level has also been increasing and compares unfavorably with the industry average. However, an improvement in times interest earned, which compares favorably with the industry average, offers some respite.
Conclusion
COIN's efforts to accelerate growth in the crypto market, increase market share in spot trading on consumer and institutional trading platforms and improve trading experience along with continued innovation and cost-control initiatives should favor its performance over a long run.
However, given its premium valuation, new investors can wait for a better entry point.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
