Analysts Expect Coinbase Revenue to Drop 75% for Last Quarter
Coinbase is expected to report a steep decline in its revenue for the last quarter of 2022 as transactions plummeted and crypto prices dropped to record low levels.
Coinbase is set to report results for the latest quarter of 2022 after the market close on Tuesday. Wall Street analysts expect the exchange's revenue to drop more than 75% compared to the same quarter in 2021, reaching $588.6 million.
Furthermore, Coinbase is estimated to post a loss of $568.1 million for the fourth quarter. In comparison, the exchange reported a net income of $840 million in the fourth quarter of 2021 and $177 million in profit for 2020.
The platform is predicted to bring in a total of $235.4 million from subscriptions and services, which roughly accounts for 40% of its total revenue. In the same quarter of 2021, less than 10% of the company's overall revenue came from these business lines.
Likewise, Coinbase's total assets are expected to come in at $88.8 billion, the lowest amount in more than two years. The decline is largely attributed to dwindling crypto prices as well as exacerbating user trust in centralized crypto platforms following the unprecedented collapse of FTX, once the third-largest exchange in the world.
Analysts for JPMorgan and D.A. Davidson, an investment banking company, have downgraded Coinbase's stock from Buy to Neutral, arguing that regulatory pressure is "just getting started."
This comes as previously S&P Global, one of the largest credit ratings providers, downgraded the crypto exchange’s debt one position from “BBB” to “BB-,” moving it from “investment grade” to “speculative grade” earlier this year.
Chris Brendler, an analyst with D.A. Davidson, claimed that while Coinbase could benefit from a clear regulatory framework, the exchange is facing a rocky road in the short term. He reportedly said in a Thursday note:
"While we still agree with [Coinbase] management's view that improved [regulatory] clarity and a level playing field should ultimately prove to be good, for both Coinbase and the sector overall, the near-term path looks increasingly treacherous."
Amid a rebound in crypto prices, shares of Coinbase also rallied early in 2023. The company's stock is up 82.55% year-to-date. However, over the past year, the stock has lost around two-thirds of its value.
How Regulatory Clampdown Could Impact Coinbase's Revenue Sources
Coin custody, stablecoins, and staking are three key businesses that Coinbase has been counting on to help jump-start its growth, according to a Bloomberg report. However, all these sectors have come under regulatory scrutiny as of late.
Last week, the SEC reached an agreement with crypto exchange Kraken to stop offering staking services or programs to clients in the country and pay $30 million to settle allegations that failed “to register the offer and sale of their cryptoasset staking-as-a-service program,” which the commission qualified as securities.
Following the move, Coinbase CEO Brian Armstrong said the exchange's crypto-staking services are not securities, adding that he is willing to defend this in court. This should not come as a surprise given that the exchange receives about 3% of its total revenue from staking fees.
Coinbase also gets revenue from stablecoin USDC. However, with the SEC clamping down on Paxos, the crypto firm that issues Binance’s stablecoin Binance USD (BUSD), Coinbase's USDC might also be in trouble.