US earnings preview: Coinbase Q1, 2023

Key dates

Coinbase is scheduled to report its first quarter (Q1) earnings after the market closes on Thursday, the 4th of May 2023.

Company profile

2022 was a year to forget for crypto markets and crypto exchanges such as Coinbase, as the crypto bear market wiped 64% off the crypto market cap or approximately $1.5 trillion over the course of 2022.

The cause of the crypto bear market, according to Coinbase management higher interest rates, elevated inflation, along with two idiosyncratic events.

“The first was the depegging of $LUNA in Q2’22 which contributed to a ~60% crypto market cap decline in that quarter and exposed poor risk management practices in crypto, which ultimately helped drive the credit related bankruptcies of Three Arrows Capital, Voyager, and Celsius. The second event was the collapse of FTX in Q4’22, which was the result of fraud, and helped drive additional credit related bankruptcies.”

The company reported the following key numbers in its Q4 2022 earnings call

• Coinbase’s userbase shrunk to 8.3 million transaction users during the fourth quarter, down 25% from a year earlier
• Transaction revenue fell to $322 million, down 85% from a year earlier
• Revenue plunged 75% from a year earlier to $629 million
• It reported an adjusted EPS loss of $2.46 per share.

What to expect

During its Q4 2022 earnings report, Coinbase noted that Crypto markets had improved and that the total crypto market cap was up 40% Year to Date through to February 17. It also noted that volatility had increased, driving $120 million of transaction revenue in January alone.

Since that update, the price of Bitcoin, which represents about 35% of Coinbase’s Trading Volume and Transaction Revenue, has surged again to end the quarter 72% higher. A move that is likely to provide a valuable kicker to Coinbase’s bottom line.

Coinbase has sought to diversify its revenues away from trading fees via Subscriptions and Services through products such as Staking, Earn and Custody. Products that generated $282.8 million in revenue in Q4 2022.

2023 is set to be an important year for crypto regulation.

Coinbase believes that policy developments will allow crypto to reach its full innovative potential and that it will benefit from tighter regulations around the crypto industry.

However, last month, the SEC served Coinbase with a Wells Notice, a formal notification that Coinbase may violate securities law.

The matter appears set for the courts, and the uncertainty it brings may outlast any positives in Coinbase’s earnings report next week.

Key financials: summary

• Revenue: $653.65m expected vs $590m in Q4 2022
• Diluted EPS: A loss of $1.37 per share is expected vs a loss of $2.46 per share in Q4 2022
• Monthly Transaction Users (MTUs) are expected to increase to 9.26 million from 8.3 million in Q4 2022
• Subscription and Services Revenues are expected to increase to $315 million from $282 million in Q4 2022.

Coinbase revenue chart

Coinbase technical analysis

The Coinbase share price fell 85% in 2022 from a high of $258.81 to below $32.00 as the crypto winter deepened in 2022 for reasons noted above.

Coinbase weekly chart

During the first month of 2023, the share price of Coinbase rallied over 150% to a high of $87.63, tracking the price of Bitcoin and other cryptocurrencies higher.

Despite Bitcoins rally extending into March end, the share price of Coinbase has fallen back towards the 200-day moving average near $60.00, likely partly due to the uncertainty created by the SEC serving Coinbase with a Wells Notice.

Coinbase daily chart

1. TradingView: the figures stated are as of April 28, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

Summary

Coinbase is scheduled to report its first quarter (Q1) earnings after the market closes on Thursday, the 4th of May 2023. While the share price of Coinbase appears to be cheap after the crypto market’s strong start to 2023, its legal issues will likely cause its shares to underperform until a legal resolution with the SEC is found.