Coinbase Faces 17% Market Cap Drop, 10% Trading Volume Decline in Q1

Coinbase is set to release its first-quarter earnings report on shaky ground, with analysts predicting a miss due to a lull in retail trading activity. This slowdown is expected to impact the crypto exchange’s most profitable business lines, leading to a decline in earnings and revenue.

The company is scheduled to report its first-quarter results after the market closes on Thursday. Analysts are projecting that earnings per share (EPS) will fall to $1.93 from $2.26 in the fourth quarter, while revenue is expected to drop to $2.1 billion from $2.27 billion. In the year-earlier first quarter, Coinbase reported EPS of $4.40 and revenue of $1.2 billion.

J.P. Morgan has cut its EPS estimate to $1.59, citing a 10% drop in Coinbase’s trading volume and a 17% slide in the total crypto market cap during the quarter. Adjusted for crypto asset losses, they see EPS at $2.39, supported in part by controlled expenses and steady subscription revenue.

Barclays and Compass Point have more pessimistic views. Barclays has slashed its revenue and EBITDA forecasts, noting that the market has cooled sharply since January despite stablecoin growth. It estimates retail volumes at $69 billion, significantly below the consensus estimate. Compass Point has downgraded the stock to sell, projecting transaction revenue of $1.24 billion, 7% below the consensus. It argues that Coinbase is losing retail share to decentralized exchanges (DEXs) and warns of further pain in the second quarter.

Popular trading platform Robinhood reported a 13% drop in transaction-based revenue from the fourth quarter as markets cooled in the first three months of the year. This trend is likely to impact Coinbase similarly, as retail trading activity remains subdued.

One area of optimism is stablecoins. Coinbase’s revenue from USDC surged as the stablecoin’s market cap climbed 42% during the quarter, helping bolster subscription revenue. Barclays estimates $304 million in first-quarter USDC-related revenue, and even the skeptics at Compass Point acknowledge this helped offset falling staking income due to the slide in ether’s price.

Oppenheimer cut its volume forecast to $380 billion from $440 billion, but noted that Coinbase gained U.S. spot trading market share. This is a positive sign, but it may not matter if retail traders continue to sit on their hands. There is also growing concern about longer-term competitive pressures from decentralized exchanges, which are drawing in retail users looking to trade a wider array of tokens.

Looking ahead, analysts caution that a near-term rebound in trading may be slow to materialize, especially with retail traders often hesitant to re-enter the market until they recoup earlier losses. Shares of Coinbase are down 23% year-to-date, trading at $198.06, while bitcoin is up 3.8% since the beginning of the year at $97,023.