Since its IPO on 14 April this year, the Coinbase [COIN] share price’s performance has been underwhelming. Its reference price was $250 and it closed the first day of trading at $328.28. But the Coinbase share price is now down 22.17% from $328.28 to $255.50 at the close on 5 August.
The downward movement of the Coinbase share price should come as no surprise, given the volatile price action of cryptocurrency in recent weeks. The US Securities and Exchange Commission’s call for cryptocurrency to be regulated has spooked investors and led to wide sell-offs in shares.
The Coinbase share price may have increased by just around a percentage point in the last month, but it is currently 19.82% up from its July low of $213.22. It is trading 22.83% above its all-time low of $208, which it dipped to on 19 May, the same day bitcoin dropped below the $40,000 mark for the first time since February. Coinbase’s share price is, however, 40.57% down from its all-time high of $429.54, which it raced to on the first day of trading as retail investors bought into the stock.
Benefits of volatility
The nature of Coinbase’s business means it is inherently a risky stock, but DA Davidson head of institutional research Gil Luria believes that the potential upside for the Coinbase share price justifies any risk.
“They benefit from volatility. That’s a bunch of people selling on their platform, paying a transaction fee. So, as long as there's a lot of volatility and a lot of transactions and interest in crypto, Coinbase is going to do very well,” Luria told CNBC’s in May.
“They benefit from volatility. That’s a bunch of people selling on their platform, paying a transaction fee. So, as long as there's a lot of volatility and a lot of transactions and interest in crypto, Coinbase is going to do very well” - Gil Luria
Luria revised his target for the Coinbase share price from $440 to $650 and has maintained it since. This implies a 154% increase from its current level.
Can investors expect the Coinbase share price to rise on the back of its Q2 2021 earnings, which the company is due to report on 9 August?
Will revenue see a boost?
Coinbase has not issued any guidance for Q2 2021 which it is to report on Aug 10. It has laid out three scenarios for MTU growth for the full year. It expects MTUs to between 4 million and 7 million on average per quarter depending on volatility.
According to Zacks, analysts are expecting revenue to be between $1.66bn and $2.10bn with a consensus of $1.83bn. Earnings per share are forecast to fall in a range of $1.89 and $2.60 with a consensus of $2.26.
Coinbase's expected Q2 revenue
Revenue for Q2 2021 may have been boosted by the platform deciding to list dogecoin in early June. The cryptocurrency championed by Elon Musk has become extremely popular with retail investors. The decision to list it was because competitors ‘supporting certain crypto assets that are experiencing large trading volume’ was proving to be a headwind, according to the Coinbase shareholder letter.
What did Wall Street expect?
In the three months to the end of March, Coinbase more than tripled its revenue sequentially from $585m in Q4 2020 to $1.8bn, while earnings per share were $3.05. Wall Street had expected the company to report an EPS of $3.07 on $1.81bn revenue. Net profit in the first quarter was up over 300% sequentially from $177m to $771m.
There were 6.1 million monthly transacting users (MTUs) in the quarter, which implies that each user brought in $295 in revenue. MTUs in Q4 2020 were 2.8 million, meaning average revenue per MTU was $208. Total revenue last year was $1.28bn with an average of 1.9 million MTUs each quarter, meaning that each MTU brought in $673.
Perhaps more significantly, trading volume increased significantly from $89bn in Q4 2020 to $335bn in Q1 2021.
“Our strong Q1 2021 results reflect the strength of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all-time high prices, high levels of volatility, and increased interest across the entire cryptoeconomy,” the company announced in a shareholder letter.
“Our strong Q1 2021 results reflect the strength of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all-time high prices, high levels of volatility, and increased interest across the entire cryptoeconomy” - statement from Coinbase
Coinbase weighs in
The Simplify Volt Fintech Disruption ETF [VFIN], which has Coinbase in its top 10 holdings alongside PayPal [PYPL] and Square [SQ] with weightings of 5.74%, 4.89% and 17.65% respectively, has fallen 12.74% since its inception less than a year ago.
Ark Innovation ETF [ARKK] also holds Coinbase in its top 10 with a weighting of 4.63% and recently added rival crypto trading platform Robinhood [HOOD]. The fund has a year-to-date daily total return of 5.09% through 5 August.
The Coinbase share price could head lower as the so-called crypto winter continues to grip the crypto market. However, any sudden positive movement for crypto assets could see a huge upswing for the Coinbase share price as trading volumes will surge.
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