Coinbase Q4 earnings preview: Where next for COIN stock?

Gold bitcoin superimposed on chart
Josh Warner
By :  ,  Former Market Analyst

When will Coinbase release Q4 2022 earnings?

Coinbase is scheduled to release fourth quarter and full year 2022 results after markets close on Tuesday February 21. A Q&A session will be held by management on the same day at 1430 PT.

 

Coinbase Q4 earnings consensus

Coinbase is forecast to report a 77% year-on-year drop in net revenue in the fourth quarter to $572 million. The adjusted Ebitda loss, its headline earnings measure, is expected to come in at $198 million compared to a $1.2 billion profit the year before. The net loss at the bottom-line is forecast to amount to $579 million and swing from a $840 million profit last year.

If it meets expectations in the final quarter, then Coinbase is on course to report a steep 57% drop in annual net revenue to $3.2 billion. Its annual adjusted Ebitda loss should total $455 million with a net loss of $2.6 billion, with both measures turning from the record profits we saw in 2021.

 

Coinbase Q4 earnings preview

The fourth quarter was rough for Coinbase. The crypto winter is expected to push user numbers and trading volumes to their lowest level in two years, which was enough to send the stock to all-time lows in early January. Monthly transacting users are forecast to fall to just 8.4 million and trading volumes are set to slide to $151.3 billion.

This will be the worst quarter for user numbers and trading volumes in two years

(Source: Bloomberg)

Coinbase has positioned itself so it can weather a multi-year downturn if it needs to, but it is not just waiting for conditions to improve. It has become more disciplined with costs, having downsized its workforce by 20% after cutting 950 jobs earlier this year and pulled back on certain projects. Coinbase has already committed to maintaining adjusted Ebitda losses under $500 million in 2022, which markets believe it can achieve and build on in 2023. The job cuts will feed through this year and should make a serious dent in operating expenses, improving its cost profile enough that markets anticipate adjusted Ebitda losses could narrow to just $66 million. That is small enough that breakeven is a possibility.

Coinbase’s focus on growing new, more reliable income streams will help. Its subscription and services business, underpinned by its offering that allows users to escape a capped amount of trading fees in return for a monthly fee, has delivered strong, albeit uneven growth over the past two years and analysts believe revenue will hit an all-time high of $237 million in the fourth quarter. It has said it should earn around $700 million from subscriptions over the full year, with analysts expecting a beat with forecasts of $743 million.

Coinbase is expected to deliver record subscription revenue this quarter

(Source: Bloomberg)

That will be welcomed, but there is still a long way to go. CEO Brian Armstrong has said he wants as much as half of Coinbase’s revenue to come from subscriptions, but this is set to contribute just 23% of annual sales in 2022, and that would have been lower if transaction revenue wasn’t so subdued. Still, it looks like an achievable goal in the coming two to three years. Subscription revenue is forecast to hit over $1.1 billion in 2023.

With all this in mind, the outlook for this year will be the most influential part of the results. The recovery in cryptocurrency prices in early 2023, with bitcoin up 48% and at its highest level in eight months, has provided some hope that the crypto winter is starting to thaw. Those hopes are high considering this has helped Coinbase shares rebound from all-time lows and more than double in value since the start of the year.

Still, cryptocurrency prices remain far below where they sat this time last year and there are reasons to doubt whether the momentum can last.

Cryptocurrencies continue to recover nicely, although with the US dollar and bond yields rising on the back of expectations of higher interest rates for longer, it remains to be seen whether the recovery will last long,’ said our market analyst Fawad Razaqzada.

Coinbase has already warned that it expects transaction levels to remain subdued in 2023 unless there is a major shift in the macroeconomic climate, but investors will hope the recent recovery in prices has raised appetite to trade.

Coinbase is likely to provide broader commentary on what to expect in 2023 along with more precise guidance for the first quarter. Here is what Wall Street expects for both periods so you can see how the company’s outlook shapes up against expectations. We can see that markets believe Coinbase’s lower cost base and subscription growth are both set to counter continued falls in trading activity, which should lead to smaller losses.

Coinbase Consensus

Q1 2023E

YoY Change

FY2023E

YoY Change

Monthly Transacting Users

8.5 million

-7.6%

9.2 million

5.90%

Trading Volume

$162 billion

-48%

$689 billion

-19%

Subscription & Services Revenue

$261 million

72%

$1.1 billion

54%

Tech & Development Costs

$825 million

-17%

$3.1 billion

-21%

Sales & Marketing Costs

$81 million

-59%

$348 million

-31%

(Source: Bloomberg)

Coinbase allows shareholders to submit questions for management ahead of each earnings call, which other investors can then upvote. This helps us understand what investors are focused on and what sort of topics will be under the spotlight in the Q&A session. As of February 16, the top five questions that have all received over 100 upvotes each are:

  1. Has Coinbase considered operating an offshore business to offer new products to international investors while it awaits regulatory clarity on such products in the US?
  2. Has Coinbase considered updating its P&L target from operating at a loss during times of trading volumes like those in 2022 and 2023 YTD, to operating at breakeven or profitability during such times?
  3. How is Coinbase working alongside lawmakers to shape US crypto regulation?
  4. Will Coinbase expand to stocks to compete with platforms like Robinhood?
  5. Are there any plans to initiate stock buybacks or reduce overall debt load if the company valuation becomes low enough?

 

Where next for COIN stock?

Coinbase shares have more than doubled in value since hitting all-time lows on January 6.

However, we have seen the stock lose some momentum after closing at four-month highs of $81.50 earlier this month. It must now break back above $75 before this target comes back into play and it can then attempt a move to the $83 peaks we saw in May and September. We saw the RSI thrusted deep into overbought territory at this level earlier in the month, so it may prove a tough ceiling to crack.

The fact the 30 brokers that cover Coinbase have an average target price of $62.70 also suggests there is limited upside on offer from here.

The 100-day moving average has provided some support in the recent fall, so $54 could hold should it come under renewed pressure. A slip lower could see it slide toward the floor we saw back in June and July at $46. A move below here brings the all-time low of $33 back onto the radar.

Can the Coinbase earnings provide a new catalyst for Coinbase stock?

 

Take advantage of extended hours trading

Coinbase will release earnings after US markets close and most traders must wait until they reopen the following day before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.

With this in mind, you can take advantage of our service that allows you to trade Coinbase and other stocks using our extended hours offering.

While trading before and after hours creates opportunities for traders, it also creates risk, particularly due to the lower liquidity levels. Find out more about Extended Hours Trading.

 

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