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Coinbase earnings preview: Here are the three factors analysts are watching

Coinbase Global (COIN) is set to release earnings after the market closes Thursday with Q3 potentially showing 2022's worst quarter yet for spot market crypto trading venues. But not every analyst agrees how much weight investors will put into the company's financials if it demonstrates growth in non-trading revenue.

Here are Wall Street's estimates compiled by Bloomberg:

Revenue: $649.15 million

Adjusted net income: ($520.52) million

Adjusted EBITDA: ($212.95) million

Adjusted earnings per share: ($2.12)

Ahead of the Federal Reserve's key decision for rate-setting this month, Coinbase shares are trading flat on the day at $63 as of midday Wednesday. COIN's value have fallen 75% from $253 per share as the central bank's rate hikes this year have slowed cryptocurrency trading among other industry-specific events.

Here are the 3 key factors analysts are watching from Coinbase's earnings.

Trading volume

Q3 crypto trading volumes fell by 40% globally — worse than in Q2 — according to Coinmarketcap. On a year-over-year basis, Coinbase’s raw trading flows could be down by more than 50% for the period, according to Dan Dolev, an equity research analyst with Mizuho Securities, which collected data showing Coinbase has lost 1% of global trading volume share among the top 25 exchanges.

“It’s pretty bad,” Dolev told Yahoo Finance a week ago. His team anticipates what may be Coinbase’s roughest quarter yet. Since August, Mizuho has held a $42 per share price target for COIN.

Fees earned from crypto trading, which accounted for more than 80% of Coinbase’s revenue last quarter, are divided by institutional and retail volumes. Before blockchain network fees, Coinbase's cut varies between 0.05% for the largest institutional orders ($400,000+) and 0.60% for ($0-$10,00).

Last quarter, retail volumes accounted for just 21% of total trading volume, yet it made up 94% of the quarter’s total transaction revenue, meaning fees from retail orders are so much higher analysts such as Dolev largely discount institutional trading volume.

Brian Armstrong, CEO and Co-Founder, Coinbase, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)
Brian Armstrong, CEO and Co-Founder, Coinbase, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

Subscriptions and services (S&S)

On the other hand, D.A. Davidson’s senior equity analyst, Chris Brendler, thinks low trading volumes may not play as critical of a role this quarter.

Brendler is eyeing the company’s subscriptions and services (S&S), which accounted for 18% — or $147 million — of its revenue last quarter and includes custody, staking services, and interest income.

Interest income showed the most growth in S&S last quarter. It rose by 211% to $32.5 million from $10.5 million in the previous quarter — thanks to rising Treasury yields.

Coinbase’s interest income includes a revenue sharing agreement for being the sole retail issuer of the second-largest stablecoin USDC. As part of that agreement, it gets 30% of the yield earned from USDC reserves, which are parked in cash and short-duration U.S. Treasuries.

In its Q2 earnings call, Coinbase executives played up staking services ahead of Ethereum’s transition to proof of stake, which over the long term is expected to cause staking yield to rise. With Treasury yields rising through Q3, Brendler is among several analysts who anticipate interest income to be a much-needed revenue cushion.

“We already know trading volume is going to be rough, but staking has just opened up and Treasury yields are going higher, so non-trading revenue should be a source for a positive surprise,” Brendler told Yahoo Finance.

While no analyst anticipates the September 15 completion of Ethereum’s merge to show an immediate revenue impact for the quarter, Brendler suggested both the run-up to the Merge in addition to interest income as both potentially softening the blow from declining trading fee revenue.

“Hopefully, everyone has already priced in the bad news on trading stocks,” he added.

The logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron and others at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton
The logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron and others at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton

Expenses

In addition to any signals Coinbase may point to that could suggest better spreads on trading volumes, Devin Ryan, director of fintech equity research with Citizen’s company JMP Securities, said he is looking for any updates on how Coinbase is spending its money.

In an analyst note following COIN's previous earnings release, Lisa Ellis, a partner with MoffettNathanson, told Yahoo Finance that Coinbase had “plenty of cash” to survive crypto’s bear market, citing $6.2 billion in cash, cash equivalents, and the dollar-pegged stablecoin USDC on its balance sheet.

Though it spent $1 billion in the first half of 2022, Coinbase announced layoffs for 18% of its workforce, some 1,100 employees, in the middle of June.

Looking ahead to future quarters, Ellis expects to see the company's cash burn falling to around $200 million per quarter.

On expenses, JMP’s Ryan said he’ll be waiting to see if Coinbase announces any more spending cuts “as a result of the ongoing sluggishness and activity.”

“I think their earnings will be much more about what they say than what they report outside of there being any surprises, which I’d expect any surprises would likely be more on the negative side than the positive side,” Ryan added.

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers

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