Here’s What We are Watching For Coinbase’s Q2 Earnings

Coinbase (COIN) has been on an absolute tear this year, up more than 180% year to date.

So with the company expected to release earnings results for Q2, 2023 on Thursday, August 3, we thought it would be helpful to provide some insights into what investors will be watching.

Trading Volumes

Perhaps the most watched metric of any, Coinbase’s trading volumes are expected to drop dramatically in the quarter.

While last quarter trading volumes were flat, data is pointing to much lower volumes in Q2 – perhaps 30% or more lower.

That said, Coinbase’s share of trading volume in the U.S. continues to rise, reaching more than 60% in June showing that it is by far the leading exchange in the U.S.

Regardless, investors will be watching the metric closely.

Interest Revenue

Coinbase has been a major beneficiary of the Fed’s rate increases, with the company generating more than $240 million in interest income last quarter.

But while interest rates have continued to increase, it may not be all rosy for Coinbase. That’s because USDC’s market cap has fallen by more than 50% over the last year.

Due to Coinbase’s revenue share agreement with Circle (USDCs parent company) in relation to the stablecoin’s market capitalization, the increase in interest rates could be offset by the dropping market cap.

Adjusted EBITDA

After three straight quarters of Adjusted EBITDA losses, Q1 was a return to “profitability” for Coinbase when they brought the metric to a positive $284 million.

Although somewhat a vanity metric – as the company still lost millions of dollars of real money in the quarter – the positive Adjusted EBITDA proved that the business can cut expenses while still generating revenue.

Expect analysts to be keeping a sharp eye on this metric to see if it is sustainable.

Regulatory Discussion

Two months ago, the SEC launched a lawsuit against Coinbase accusing the company of operating an unauthorized exchange.

Since then, the positive Ripple ruling has bolstered confidence among investors that Coinbase might have a real chance of beating the SEC.

Although Coinbase CEO, Brian Armstrong, and Chief Legal Office, Paul Grewal have been vocal on Twitter and in interviews about regulatory concerns, we expect questions from analysts to be heavily centered (as always) on regulatory issues.

Diversification

When commenting on Coinbase’s Q1, 2023 earnings, we stated:

Although the company has done a good job creating other income through interest revenue, the act doesn't really speak to a transformational, disruptive business. If you want to invest in a company for their interest revenue generation, go buy a bank stock.

There is a reason that last quarter we stated:

Their NFT platform didn’t do it, and we haven’t heard much yet about the take rate on Coinbase One, so unless international expansion and BASE (both covered below) do it, there will be disappointment among investors.

International Expansion

Coinbase International Exchange, which only initiated its offshore futures exchange operations in May, has already accumulated nearly $2 billion in volume for July.

Although this only represents a tiny portion of the total futures volume of $550 billion in July, it signifies a substantial amount considering the short time frame since the exchange's inception.

While U.S. regulators continue to try to stop Coinbase, we will be interested to learn how the exchange currently feels about international expansion.

BASE

Earlier this year in April, Coinbase announced its latest project dubbed Base – it’s very own L2 blockchain.

And although the chain hasn’t officially launched, this week it became the talk of the town. That’s because more than $84 million of ETH was bridged to the network as traders pumped up (and dumped) a bunch of worthless meme coins.

Although Base is an amazing achievement from Coinbase and could drive billions in dollars of revenue to the exchange…

…Rugpulls, hacks, and frauds aren’t exactly the best thing to be involved in while regulatory scrutiny is on you.

Don’t be surprised if the Coinbase executive team directly comments on Base and what occurred this week.