Shares of Coinbase (COIN) are under pressure on Wednesday after the largest cryptocurrency exchange in the U.S. reported mixed third quarter results, with revenue missing estimates. The company also said it saw a summer slowdown in cryptocurrency trading that caused a sales slump and that monthly transacting users fell from the prior period. Despite the miss, several Wall Street analysts raised their price target on the stock, while keeping Buy-equivalent ratings on the name.
RESULTS: Coinbase reported third quarter earnings per share of $1.62, which was better than the expected $1.56, and revenue of $1.312B, which was worse than consensus estimates at $1.57B. "As our year-to-date results have clearly demonstrated, our business is volatile. Coinbase is not a quarter-to-quarter investment, but rather a long-term investment in the growth of the cryptoeconomy and our ability to serve users through our products and services. We encourage our investors to take this point of view... Swings in market conditions are expected in these early days of the cryptoeconomy. However, the cryptoeconomy is growing and innovating throughout, and Coinbase is positioned to thrive," the company said.
"In Q3, Verified Users grew to 73 million and retail Monthly Transacting Users (MTUs) were 7.4 million. The number of institutions and ecosystem partners using Coinbase also continued to grow nicely. We generated $1.2 billion in net revenue, marking our third consecutive quarter of over $1 billion in net revenue. This includes $1.1 billion in transaction revenue and $145 million in Subscription and services revenue. Net income and Adjusted EBITDA were $406 million and $618 million, respectively," Coinbase added.
The company also stated, "In October, the total crypto market capitalization increased roughly 35% compared to the end of September and while crypto asset volatility remained elevated. Accordingly, retail MTUs and total trading volume were 11.7 million and $186 billion in the month of October, respectively. October trends include higher levels of activity among retail traders who have historically traded more on Coinbase during periods of heightened volatility. As a result, our blended average retail fee rates increased in October compared to reported Q3 levels. Our blended average fee rate is an output based on how active different types of customers are on our platform. We do not manage our business to optimize for fee rates nor do we have insights into the remainder of 2021. We believe that retail MTUs and total trading volume will be higher in Q4 as compared to Q3."
PROGRESS IN THE QUARTER: Following quarterly results, Piper Sandler analyst Richard Repetto raised the firm's price target on Coinbase to $440 from $360, while keeping an Overweight rating on the shares. The analyst acknowledged that the company reported a third-quarter miss driven by the retail fee rate, but despite the transaction revenue miss, he believes Coinbase's metrics and subscription revenues point to progress in the quarter.
JMP Securities analyst Devin Ryan also raised the firm's price target on Coinbase to $405 from $330 and kept an Outperform rating on the shares. The company's third-quarter sales mix drove a revenue shortfall amid a substantial slowdown in trading volumes from the second quarter, though management indicated that it did not see a customer migration into the lower fee Coinbase Pro, the analyst told investors. Ryan added that Coinbase is actually seeing a snapback in fee rates in the fourth quarter, with average daily transaction volumes tracking up 80% quarter-to-date over third quarter levels.
Keeping a Buy rating on Coinbase, Canaccord analyst Joseph Vafi raised his price target on the stock to $342 from $325. The analyst argued that with every passing quarter, the company is further solidifying its leading position relative to crypto and the emerging blockchain opportunity. Further, he is "particularly encouraged" by the increase in user engagement he is seeing outside of investing. The addition of new products like NFT and direct deposit will further boost engagement and wallet size, Vafi contended.
PRICE ACTION: In Wednesday morning trading, shares of Coinbase have dropped over 3% to $344.63.
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