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Coinbase Could Beat Q1 2024 Earnings Estimates

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  • Coinbase share price is highly correlated to Bitcoin price
  • Coinbase is a beneficiary of its custodian business
  • Coinbase Q1 earnings are likely to exceed estimates given strong crypto performance

Crypto trends are a major driver for Coinbase share price

Generally, Coinbase and other crypto currencies exchanges perform well when cryptos are in a bull market. In 2023 Bitcoin alone contributed one third of Coinbase’s trading volume and transaction revenue. Given Bitcoin’s market cap of $1.2 trillion is half of the total cryptocurrency market cap, its performance can heavily influence the rest of the digital tokens and related stocks.

Bitcoin enjoyed a stellar run last year and Coinbase has been a key beneficiary. Crypto currency prices surged in anticipation and after the launch of the spot Bitcoin exchange traded funds (ETFs) in mid-January. That triggered a renewed interest in digital currencies pushing Bitcoin price to a new all-time high in mid-March.

Bitcoin has rallied strongly since November 2022 advancing more than 370% from its low of $15,500 to its fresh record high of $73,666. Simultaneously Coinbase has bottomed at $31.55 in January 2023 and has surged to $283.48 in March – gaining more than 780%.

After reaching a high of $283.48 in March the share price of Coinbase declined 27%, in tandem with the crypto complex. Bitcoin retreated 18% during the same period, while Ethereum was down 30%. The movements in crypto prices not only affect Coinbase share price but also its trading volumes. In a crypto bull market Coinbase trading volumes spike, while in a crypto bear market volumes subside.

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Source: TradingView

The impact of halving on bitcoin price

The euphoria around the Bitcoin halving has started to fade and its price has been trading sideways between $60,000 and $73,000 over the past month. While past halving cycles have triggered a massive bull run for Bitcoin, caution is required at present as the macro-economic environment characterised by high inflation and high interest rates, is different from prior halving events.

There is clear division among investors about the impact of the halving on Bitcoin’s price. One camp expects Bitcoin prices to surge significantly higher due to the supply shock, while the other is of the view that the halving is already priced in.

Now that the Bitcoin halving seen as one of its latest major price drivers is over, the outlook for cryptos would turn again to the macro-economic factors such as interest rates, inflation, the direction of the stock markets and geo-political tensions. Over the long-term, we expect Bitcoin’s bull run to resume and we see higher price levels on the cards.

Coinbase is a custodian for most of the spot Bitcoin ETFs

Coinbase is the custodian for eight of the eleven new Bitcoin ETFs, which is highly beneficial for the company’s business as demand for Bitcoin ETFs has been huge. The company charges a fee for assets under custody, which are a few basis-points on the assets under custody.

Cryptocurrency custodians have a similar role to banks in traditional finance – to settle trades, manage regulatory reporting, keep, and manage clients’ assets. However, for crypto markets the process is more complex as it is more specific to digital assets. Also, the technology, security and storage requirements are different.

Prior to the launch of Bitcoin ETFs Coinbase revenue from custody fees for Q4’23 was at $19.7 million. This figure is likely to be substantially higher in Q1’24 as spot Bitcoin ETFs assets under management have been surging since their launch.

Investor’s focus turns to the earnings report on the 2 nd of May

Apart from crypto prices, the next driver for Coinbase share price would be the company’s earnings which have been exceeding estimates in the last four quarters. The results will provide information about the company’s transaction revenue, the growth of the custodian business, given Coinbase is the biggest holder of Bitcoin ETFs.

Although the latest drivers of bitcoin have not transpired into Coinbase earnings results yet, the company has been gradually improving its financials. In Q4’23 Coinbase turned into profitability for the first time since Q4’22 – where from a loss of $557 the company turned into profits of over $273 million.

In its Q4’23 results Coinbase declared diluted earnings per share of $1.04. Total revenue has risen to $953.8 million marking the company’s second consecutive increase after six quarters of declines. Consumer transaction revenue surged almost 60% annually to $492.5 million.

Consensus estimates point to a strong Q1’24 with revenue above $1.3 billion and earnings per share of $1.05. According to the company, transaction revenue is rising, and it predicts subscription and services revenue will be in the range between $410 million and $480 million vs. $361.7 million the same quarter the prior year.

Coinbase outlook

While some see the Bitcoin ETFs pulling business from Coinbase over the longer-term, the company’s CEO Brian Armstrong is a lot more optimistic about the impact of Bitcoin ETFs on the company and crypto markets in general, pointing to observed increased engagement and both retail and institutional inflows.

Coinbase is benefiting from the crypto adoption and booming activity after the spot Bitcoin ETFs launch. The significant volume growth in the quarter could fuel a strong Q1’24 results, beating Wall Street expectations. While some short-term volatility could be seen, the long-term outlook remains bright as the company would benefit from the blockchain technology adoption. However, if crypto prices stagnate in the near-term the growth could continue at a slower pace.

Of course, the most powerful factor that could influence Coinbase share price in the very short-term is how the actual results would compare to consensus estimates. The immediate performance of the stock following Coinbase earnings report would be influenced by whether Q1’24 results meet or miss expectations and the company’s management discussion of business conditions on the earnings call and its forward guidance. Overall, Coinbase appears to be well positioned to beat its Q1’24 earnings estimates.

Conclusion

The crypto space has a huge potential as the approval of the eleven Bitcoin ETFs marks a significant milestone in integrating cryptocurrencies into mainstream finance and is likely to offer consistent support to the sector in the long run.

Professional traders looking for magnified exposure to Coinbase may consider Leverage Shares +3x Long Coinbase or Leverage Shares -3x Short Coinbase ETPs.

Footnotes:
  1. Coinbase / Investor Relations
Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

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