Summary Bitcoin trading volumes have dropped sequentially. USDC market cap now quoted under $30 billion. Street revenue estimates may be too high. One of the biggest winners during this earnings season has been Coinbase ( COIN ). Shares of the cryptocurrency platform have surged after the company smashed Street estimates on both the top and bottom lines. While the first quarter of this year definitely was much stronger than expected, there have been a few troubling signs in the crypto space during the first half of Q2. Coinbase reported net revenues of more than $736 million for Q1. While this was down almost $430 million from the year ago period, analysts were calling for the top line figure to be around $650 million. This was the strongest quarter of the past three, as both transaction revenue and subscription/services revenue both rose nicely on a sequential basis. The graphic below shows the overall revenue breakdown. Quarterly Revenue Breakdown (Company Shareholder Letter) Coinbase has also done a tremendous job of reducing its expense base. In the year ago period, transaction, sales, and marketing expenses were more than 40% of net revenues. In Q1 2023, the number was nearly sliced in half to about 22%. Other operating expenses like technology and general expenses have also come down significantly, with the number of employees down more than 28.5% year over year. Even with over $144 million in restructuring expenses booked for the period, the Q2 net loss improved to less than $79 million from almost $430 million a year earlier. For Q2, however, things are not looking as rosy. Subscription and services revenue guidance is for about $300 million, which would be down more than $60 million on a sequential basis. Coinbase management noted in the shareholder letter that the average USDC market cap in April was $31.7 billion, which was 23% lower than the Q1 average of $41.3 billion. USDC is a key driver of interest income, and the latest data now has that market cap under $30 billion and declining almost daily. Management also stated that it generated approximately $110 million of transaction revenue in April, as crypto asset volatility has declined. In Q1, this segment of the business averaged about $125 million per month in revenue. There are reasons to be worried here, for instance, as Bitcoin trading volumes are not looking good right now. As the chart below shows, average daily volume for the flagship cryptocurrency actually started up for the first 11 days of the quarter, but has since worsened. The quarter over quarter decline was at 24.54% through Day 33 (which would represent the day before Coinbase reported Q1), but that number is now over 27%. Bitcoin Daily Volume (Yahoo) I bring up these recent trends because it looks like analyst estimates might be a bit high at the moment. Given what management guided to, and the continued declines in both the USDC market cap and Bitcoin volume since, it would appear that Coinbase is on track for a Q2 revenue print in the low to mid $600 million range. Going into Tuesday, May 16, the average analyst estimate for the quarter was $686 million, which would certainly favor the bear camp. Even though Coinbase stock have come about $5 above last week's high, they still remain up about 20% from where they were going into the Q1 report. The 50-day moving average is just about $3 above current levels, and that key technical line could be one of major resistance moving forward. In the end, the Q2 trends so far for crypto have not looked good, so investors in Coinbase should have some caution unless we see some of these key items improve in the back half of the quarter.
