Cryptocurrency broker
Coinbase Global
is set to report its fourth-quarter financials after the closing bell on Tuesday. Investors should be prepared for a messy set of results, reflecting a difficult 2022.
A plunge in crypto prices and waning interest in digital assets among investors have wreaked havoc on Coinbase stock (ticker: COIN), which has tumbled by almost two-thirds in the past year. The platform remains heavily reliant on fees linked to token trading to generate revenue, so the bottom line has taken a hit as falling prices have discouraged its core audience of retail investors.
Regulatory pressure on the crypto industry, which has been building since rival exchange FTX collapsed in November amid allegations of fraud, are another concern. Federal agencies have targeted competitors in recent weeks, scrutinizing interest-bearing “staking” services and stablecoin products.
Coinbase also dabbles in those areas, raising the prospect of possible legal headaches, but you wouldn’t know it by looking at the stock’s move this year.
Despite the long-term slide, shares are up by 80% so far in 2023. A recovery in
Bitcoin
prices and greater willingness among investors to buy riskier assets are partly responsible. So are traders who have piled into bets against Coinbase, shorting the stock so aggressively that upward moves in the price can cause a rush to close out those positions. The phenomenon, known as a short squeeze, is what fueled GameStop’s (GME) spectacular rally during the meme-stock frenzy in early 2021.
Analysts surveyed by FactSet expect Coinbase to report a fourth-quarter loss of $2.52 a share from revenue of $588 million. That would be the lowest revenue figure for the group since the end of 2020. Coinbase has already warned investors to expect an annual loss of as much as $500 million not counting interest, taxes, depreciation, and amortization.
As is usual, the stock is likely to rise or fall if the loss is much less or much more than expected. The fact that Coinbase stock is heavily shorted could exacerbate moves in either direction.
Other elements of the results will also be in focus. Retail trading volumes should give analysts a good sense of trends in the crypto market at large. Wall Street will also be interested in net interest income—how Coinbase is profiting off U.S. dollar stablecoins and cash in an environment of higher interest rates—and any growth in its subscription and services business, a pillar of its efforts to diversify.
Coinbase stock was down 3% in early afternoon on Tuesday, while the
S&P 500
had fallen 1.7%.
Write to Jack Denton at jack.denton@barrons.com
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