Without question, the crypto market, which Coinbase Global (COIN) relies on, has been in a massive slump so far in 2022. Crypto investors have shifted their stance on the growth prospects of the entire crypto industry evidenced by the punishment in Bitcoin, which has fallen as much as 70% from its peak.
Since reaching its all-time highs of around $68,000, Bitcoin plunged below $19,000 in June. Likewise, Coinbase has also been punished. The company has planted itself at the forefront of the cryptocurrency industry to become largest U.S. cryptocurrency exchange. Its shares have fallen near 80% from their November peak. The company, which generates its revenue via transaction fees from customers buying and selling cryptocurrencies like Bitcoin, will report second quarter fiscal 2022 earnings results after the closing bell Tuesday.
Investors want to know if now a good time to buy COIN stock. Listing about 50 cryptocurrencies for trading, an estimated 90% of Coinbase's revenue comes from transaction fees and services like storage. As such, the company relies heavily on increased popularity in the market. A bullish surge in crypto is certain to push COIN stock higher. Similarly, the short-term fluctuations and volatility in the crypto market is also great for business given that it translates for increased fees for the company.
In recent weeks, the crypto market has been on an uptrend and has recouped some losses and regained its $1 trillion market cap. However, there is still the hesitancy to proclaim a bottom has been reached. But things might soon take a turn for the better. Peter Christiansen, analyst at Citigroup, opened a 90-day upside catalyst watch on the company, saying he sees "good developments brewing" on the potential for legislation on stablecoins and ethereum's transition to proof-of-stake.
In a note to his clients, Christiansen said that this development "could represent hundreds of millions of annual blockchain reward revenue for Coinbase.” The company has almost 90 million retail users on it platform, along with more than 10,000 institutions. With such strong brand recognition and a sizable ecosystem, Coinbase has the scale to achieve its growth objectives. The company on Tuesday can change the bearish perception by delivering a top and bottom line beat, along with outlining its path towards sustainable profits.
In the three months that ended June, Wall Street analysts expects the Wilmington, DE-based company to post a per-share loss $2.68 on revenue of $830.52 million. This compares to the year-ago quarter when earnings were $6.42 per share on revenue of $1.78 billion. For the full year, ending January, the loss is projected to be $7.76 per share, compared to EPS of $14.50 a year ago, while full year revenue of $3.91 billion would decline 50% year over year.
The projected year-over-year decline in revenue and wider loss on EPS highlight some of the risks with Coinbase’s current business model which is 90% tied to the crypto transaction fees. In other words, unless investors are buying and selling cryptocurrencies, Coinbase doesn’t make any money. The company been trying to diversify into a subscription service. But it’s still in the early stages of that business which doesn’t yet produce enough to impact the bottom line.
In the most recent quarter, the company missed on both the top and bottom lines, reporting Q1 revenue of $1.16 billion which declined 35% year over year, missing estimates by $300 million, while the Q1 loss of $1.98 per share missed by $1.73. The company also issue disappointing guidance which sent the stock 18% lower. On Tuesday Coinbase will need to drastically improve on these numbers to get investor sentiment to shift in its favor.
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