Coinbase Revenue May Be Hurt by Lower Trading Volumes, Regulatory Uncertainty, Analysts Say

• Analysts expect a slowdown in spot trading volume to hurt Coinbase's revenue in the third quarter.
• The exchange reports Q3 earnings post-market on Wednesday.
• Third quarter revenue is forecasted to decline about 13% from the second quarter, according to FactSet.

Wall Street analysts expect a further slowdown in spot trading volume for Coinbase (COIN) in the third quarter, partly triggered by a lack of catalysts for crypto and an uncertain regulatory environment heading into the presidential election.

The crypto exchange, when it reports its earnings post-market on Wednesday, is expected to experience a revenue decline of about 13% in the third quarter, to $1.26 billion from $1.45 billion in the last quarter, according to estimates on FactSet. Meanwhile, the earnings per share (EPS) are forecasted to be $0.46, up from $0.14 in the second quarter.

“Volumes continued to soften through the quarter and we shake out quite a bit below the Street, largely on weaker retail transaction revenues,” Barclays analyst Benjamin Buddish wrote in a note. He has an equal weight rating on the stock and raised its price target to $175 from $169 while cutting the EPS estimate to $1.05 from $1.62 in the third quarter.

The third-quarter slowdown in trading volume is not just Coinbase-specific but an industry-wide phenomenon. Data from The Block shows that roughly $3.3 trillion was traded on all crypto exchanges, compared to $3.92 trillion in the second quarter. Coinbase competitor Robinhood (HOOD) is also set to report third quarter earnings after-market on Wednesday.

Additionally, the data revealed that crypto exchange Crypto.com has been the most popular trading venue for investors in the North American region since July when it first overtook Coinbase as the exchange with the highest trading volume. One of the reasons why Coinbase might have fallen short in volume is due to Crypto.com’s offering of a wider range of tokens.

Analysts also believe that regulatory uncertainty due to the upcoming presidential election results was one of the main drivers behind lower trading volumes on U.S. exchanges. According to Oppenheimer, the spot volume outside of North America increased 61% from the previous quarter. “We believe lack of catalysts and US election overhang have negatively impacted bitcoin,” Oppenheimer analyst Owen Lau wrote. “International volume was a bright spot.”

The investment bank estimates that third-quarter revenue will be $1.29 billion and EPS will be $0.40. It has an outperform rating on Coinbase and a price target of $282 over the next 12 to 18 months.

Lower staking revenue

In addition to lower revenue from trading fees, which continues to be Coinbase’s main stream of income, J.P. Morgan’s Kenneth Worthington expects lower revenue from the exchange’s staking services. This is largely driven by ether (ETH) underperforming in the third quarter, down roughly 24% from Q2, according to the bank.

Ether, the second-largest cryptocurrency by market cap, has been trading in the rough range of $2,330 to $2760 since August, with the current price at $2624 as of press time. In the months from April to June, that range was much higher, at $3,503 to $3,368.

“Ether [has] particularly underperformed [during the quarter] despite seeing the launch of its spot ether ETPs intra-quarter,” Worthington wrote. “We see this market cap contraction particularly weighing on Coinbase’s staking revenue in 3Q and subscriptions and services revenue overall.”

Subscription and services revenue was one of the bright spots in the second quarter, growing 17% from Q1. The main catalysts for the uptick were higher average USDC on-platform balances and USDC market capitalization.

J.P. Morgan, which rates the stock neutral, raised its price target to $196 from $180. However, it sees EPS landing anywhere between $0.42 and $0.54 for the third quarter.

Shares of the exchange are up nearly 30% year-to-date, but they are currently 21% down from their peak of $279.71 in March. As of press time, the stock was trading at $221.97.