Coinbase earnings have Wall Street wondering if the crypto company is too optimistic or misguided

Coinbase earnings have Wall Street wondering if the crypto company is too optimistic or misguided
Coinbase earnings have Wall Street wondering if the crypto company is too optimistic or misguided

Coinbase Global Inc. executives remain optimistic about the long-term promise of their cryptocurrency platform, but they admitted Tuesday that current challenges in the crypto market are likely to persist.

After posting a $1.1 billion loss in the most recent quarter amid declining volume and active users, Coinbase COIN,
+6.51%
estimated that volumes and monthly transaction users could fall further in the current quarter.

In addition, executives said they were “cautiously optimistic” about their ability to “operate within the $500 million adjusted Ebitda range” they had targeted earlier this year.

Shares of Coinbase rose 1% in morning trading on Wednesday.

Despite management being “bullish as ever” on the future of crypto, analysts remained largely focused on the near-term challenges in the wake of the latest report.

“The key earnings question was whether the company will announce further cuts to its bloated expense base to limit losses and cash burn,” Bernstein’s Harshita Rawat wrote. “However, management noted that they are ‘cautiously optimistic’ about limiting losses to the previously guided -$500 adj. Ebitda number. We believe this may turn out to be an optimistic scenario.”

Rawat is concerned about “ballooning” stock-based compensation, as well as the company’s trends in cash spending. She noted that Coinbase saw stock-based compensation creep up to 49% of net income in the most recent period, while Coinbase also burned through more than $400 million in cash.

“We believe the company has sufficient liquidity in the near to medium term, especially since debt maturity is far out (2026-2032),” she added. “But we now worry more about increasing SBC (as an offset to cash burn) and potential dilution.”

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Rawat rates the stock at market with a target of $46.

Raymond James analyst Patrick O’Shaughnessy wrote that Coinbase would need to see “a lot” of improvement in trading volumes to get on the path to positive adjusted EBITDA.

“Whether that improvement will take place is very much an open question: While management remains optimistic this is only a temporary ‘crypto winter’, major cracks in the ecosystem and reduced reliance on crypto as an inflation hedge call this into question, in our view “, he wrote. “Meanwhile, regulatory scrutiny continues to increase, as do competitive pressures.”

He rates the shares as underperformers.

Keefe, Bruyette & Woods analyst Kyle Vogt, meanwhile, downgraded Coinbase stock to Underperform after earnings, though he maintained his $45 price target.

“COIN’s revenue visibility remains very challenging, especially with retail continuing to disconnect from crypto trading and with download activity also trending negatively,” Vogt wrote. “While cash burn is likely to be manageable in the short term given the company’s large cash holdings, investors may be wary of entering until they see evidence of stabilization in some of these significant downtrends.”

He noted that his 2023 net income expectations were 36% below the consensus view.

Others, including DA Davidson’s Chris Brendler, took a more optimistic stance.

“The 2Q crypto meltdown weighed heavily on Coinbase’s earnings, but we found 2Q results broadly better than our mid-July reset,” Brendler wrote. “With positive divergences across several key drivers, including rates, non-trading revenue and expenses, we are more bullish on COIN’s profitability.”

He further commented that while Coinbase faces a “scary” short-term landscape, “the recent rally increases our confidence in an eventual recovery when the Fed really swings.” Shares have risen 47% in the past month, as the S&P 500 SPX,
+1.93%
has risen 7%.

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Meanwhile, “COIN is well positioned to weather the winter and emerge stronger (and leaner) on the other side,” in Brendler’s view.

He rates the stock a buy and raised his price target to $100 from $90.

MoffettNathanson’s Lisa Ellis suggested that Coinbase’s cash burn trends may be better than they appear, given that “unusual non-operating items” such as tuck-in mergers, cryptocurrency investments and short-term debt repayments were factored into the performance in the past. couple of blocks.

“We estimate that the total current cash position of the firm ($6.2 billion cash and cash equivalents) will only fall to ~$5 billion by the end of 2023, despite our assumption that the current crypto market will persist through the next six quarters,” wrote Ellis.

Ellis has an outperform rating and a $200 price target on Coinbase’s stock.

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