Coinbase’s Third Quarter Earnings Anticipated to Decline Amid Industry-Wide Slump in Spot Trading Volume
The third quarter earnings report for Coinbase is expected to show a decline in revenue due to a slowdown in spot trading volume, with analysts predicting a 13% decrease from the second quarter. This decline is not isolated to Coinbase but is part of an industry-wide trend, with data from The Block showing that overall crypto exchange trading volumes have decreased from $3.92 trillion in the second quarter to $3.3 trillion in the third quarter.
The impact of this decline on Coinbase’s revenue will likely be significant, with analysts estimating a drop from $1.45 billion in the second quarter to $1.26 billion in the third quarter. This decrease is attributed to a lack of catalysts for crypto and an uncertain regulatory environment heading into the presidential election. The earnings per share (EPS) are forecasted to be $0.46, up from $0.14 in the second quarter.
Industry-Wide Slump in Spot Trading Volume
The decline in spot trading volume is not unique to Coinbase but affects the entire industry. According to data from The Block, overall crypto exchange trading volumes have decreased by 16% compared to the second quarter. This trend is observed across various exchanges, with Coinbase competitor Robinhood also expected to report a decrease in third-quarter earnings.
The reasons behind this decline are multifaceted and include regulatory uncertainty due to the upcoming presidential election results. Analysts believe that this uncertainty has led to lower trading volumes on U.S. exchanges. In contrast, international volume has increased, with spot volume outside of North America rising by 61% from the previous quarter.
Crypto.com’s Impact on Coinbase’s Trading Volume
One of the factors contributing to Coinbase’s decline in trading volume is the rise of Crypto.com as a popular trading venue for investors in the North American region. Since July, Crypto.com has been the exchange with the highest trading volume, surpassing Coinbase. One reason behind this shift is Crypto.com’s offering of a wider range of tokens, which may be more appealing to investors.
Regulatory Uncertainty and Election Overhang
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 by 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."
Lower Staking Revenue
In addition to lower revenue from trading fees, which continues to be Coinbase’s main stream of income, analysts expect 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. Ether has been trading in the rough range of $2,330 to $2760 since August, with the current price at $2624 as of press time.
Subscription and Services Revenue
While subscription and services revenue was one of the bright spots in the second quarter, growing 17% from Q1, analysts expect this trend to reverse in the third quarter. The main catalysts for the uptick were higher average USDC on-platform balances and USDC market capitalization. J.P. Morgan raised its price target to $196 from $180 but sees EPS landing anywhere between $0.42 and $0.54 for the third quarter.
Impact on Coinbase’s Stock Price
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. The stock price has been affected by the decline in revenue and EPS estimates.
Conclusion
The third quarter earnings report for Coinbase is expected to show a decline in revenue due to a slowdown in spot trading volume. This trend is part of an industry-wide phenomenon, with overall crypto exchange trading volumes decreasing from $3.92 trillion in the second quarter to $3.3 trillion in the third quarter. Regulatory uncertainty and election overhang have negatively impacted bitcoin, while international volume has increased. The decline in staking revenue due to ether’s underperformance is also expected to affect Coinbase’s earnings. As the exchange continues to navigate this challenging environment, investors will be closely watching its quarterly report for any signs of recovery or improvement.