Coinbase Earnings Are Coming. Another Bad Quarter Isn’t Even the Biggest Worry.

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Coinbase Global
’s
stock price has surged this year in tandem with

Bitcoin’s
big rally but the cryptocurrency broker’s fundamentals have shown little improvement. Analysts expect another gloomy earnings report Thursday–and that’s not even the biggest worry for the stock.

Coinbase (ticker: COIN) stock have gained 43% this year—trouncing the

S&P 500
‘s 7% rise—helped by a 70% advance in Bitcoin, the biggest digital asset. But the stock, which opened at $50.15 on Wednesday, is down 85% from when Coinbase went public during the last crypto bull market, with Bitcoin down 60% from its late-2021 high.

Analysts surveyed by FactSet expect Coinbase to report a first-quarter loss of $1.98 a share on revenue of $655 million, a slight improvement from the end of 2022, when the broker reported a $2.46 per-share quarterly loss on $629 million in revenue.

Despite efforts to diversify into subscription and services businesses, the price of Bitcoin remains key for Coinbase, and its financials should have been boosted by the rise in crypto assets in the last quarter. With its core customer base remaining U.S. retail investors, Coinbase is sensitive to bull and bear market dynamics, because this cohort of traders tends to pile in when prices are rising and flee when prices are falling.

But, this time, a rally in Bitcoin prices might not even be enough.

“Our detailed revenue build points to at least 20% downside to consensus in both second quarter and full-year 2023, as muted trading volumes and a sharp decline in USDC market cap are likely to weigh on transaction revenue and interest income,” Dan Dolev, an analyst at Mizuho Securities, wrote in a note. Mizuho rates Coinbase at Underperform and on Wednesday cut its price target on the stock to $27 from $30.

USDC is USD Coin, a U.S. dollar-pegged stablecoin issued by Circle Internet Financial. Circle and Coinbase have a revenue-sharing agreement—indicative of Coinbase’s diversification efforts—whereby Circle pays the group to hold cash in USDC.

“Despite Coinbase’s recent efforts to boost sentiment (e.g. recent launch of an international exchange for non-U.S. users), fundamentals remain weak,” Dolev added.

Earnings, though, might matter far less than they used. That’s because the digital asset space at large has come under intense U.S. regulatory scrutiny over the past year, and Coinbase has not been exempt.

Coinbase disclosed in March that the Securities and Exchange Commission had sent it a so-called Wells notice, a warning that the agency may sue the exchange. Coinbase said it was confident in the legality of its assets and services, but has since flagged that it would consider pushing offshore if U.S. regulatory clarity does not improve. This week, the company launched Coinbase International Exchange, a bid to push into the lucrative crypto derivatives market with a platform regulated out of Bermuda.

“As it stands, both long and short debates begin and end with Coinbase’s regulatory predicament,” Peter Christiansen, an analyst at Citi, wrote in a Monday note while downgrading Coinbase to Neutral/High Risk with a price target lowered to $65 from $80. “Until the regulatory ‘rules of the road’ are better established in the U.S., the stock will remain weighed down by this high level of uncertainty.”

Write to Jack Denton at jack.denton@barrons.com