On Wednesday, Jefferies, a global investment banking firm, revised its price target for Coinbase (NASDAQ:COIN) Global Inc. (NASDAQ:COIN) shares, reducing it to $220 from the previous $245. The firm has maintained its Hold rating on the stock. The adjustment follows a quarter marked by softer market conditions and lower volatility, which led to a decline in transaction revenue for Coinbase.
Coinbase experienced a significant drop in total trading volume, with a quarter-over-quarter decrease of 28%. Retail trading volume fell by 34%, and institutional volume by 26%, as the US spot market saw a 30% decline.
The overall cryptocurrency market capitalization also decreased by 11% compared to the previous quarter. As a result, Coinbase's transaction revenue fell by 27%, with retail and institutional revenues down by 29% and 26%, respectively.
Despite the downturn in volume, Coinbase's retail take rate—the percentage of transaction value that Coinbase earns—expanded by 13 basis points quarter-over-quarter to 1.80%. This increase is primarily attributed to fees from new derivative products and wallet services.
The institutional take rate saw a slight increase of 1 basis point to 0.34%, the highest since early 2021, likely due to the continued strength in Coinbase Prime adoption.
Coinbase's Subscription and Services (S&S) revenue is expected to decrease in the third quarter, aligning with the Street's expectations. The second quarter saw S&S revenue rise by 17%, or 16% excluding a one-time staking fee of $8 million, driven by a 23% increase in staking revenue and a 22% increase in stablecoin revenue.
For the third quarter, S&S revenue is projected to be between $530 million and $600 million, which would represent a roughly 6% quarter-over-quarter decrease at the midpoint. This forecast is primarily due to anticipated effects from a September rate cut and higher expected costs associated with the USDC stablecoin.
Looking ahead to the third quarter, transaction revenue through July was approximately $210 million, suggesting a run-rate of about $630 million, which is a 20% decline from the previous quarter and below the Street's estimate of roughly $768 million.
Coinbase's guidance also indicates that core operating expenses are expected to increase by about 6% sequentially, mainly due to the timing of stock-based compensation and an increase in variable marketing spend.
InvestingPro Insights
With Coinbase Global Inc. (NASDAQ:COIN) navigating through a challenging quarter, it's crucial to consider various financial metrics and market expectations that can provide investors with a broader perspective. According to real-time data from InvestingPro, Coinbase boasts a substantial market capitalization of $49.01 billion, reflecting its significant presence in the cryptocurrency exchange sector. Despite the recent downturn, analysts expect Coinbase to experience net income and sales growth in the current year, which could signal a potential rebound as market conditions evolve.
The company's Price/Earnings (P/E) ratio stands at 31.8, with an adjusted P/E ratio for the last twelve months as of Q2 2024 at 36.18. This valuation metric suggests that investors are willing to pay a higher price for Coinbase's earnings, possibly due to anticipated future growth. Furthermore, the PEG ratio, a measure that takes into account earnings growth expectations, is notably low at 0.17, indicating that the stock may be undervalued relative to its earnings growth potential. On the other hand, the Price/Book (P/B) multiple is high at 5.86, which could be a point of consideration for value-focused investors.
InvestingPro Tips highlight that while some analysts have revised their earnings estimates downwards for the upcoming period, the company is still predicted to be profitable this year. It's worth noting that Coinbase does not pay a dividend, which might influence the investment strategy for income-seeking shareholders. For those interested in a deeper dive into Coinbase's financial health and future prospects, InvestingPro offers additional tips and insights, with a total of 11 more tips available at InvestingPro.
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