Strong earnings beat, as expected
- Coinbase reported 4Q23 profit of US$273m, first quarterly profit in last two years, substantially above consensus forecast of US$10m
- Yet, that should be largely expected by investors, as trading volume data is publicly available and share price has more than doubled since end-Sep 2023
- We remain cautious over trading volume sustainability and potential fee compression; maintain HOLD with TP slightly lifted to US$160, reflecting recent rebound in Bitcoin price
First quarterly profit in last two years. 4Q23 revenue surged 45% q-o-q to US$905m, as (1) transaction revenue grew 83% to US$529m amidst the hype towards Bitcoin ETF approval and (2) subscription and services revenue up 12% to US$375m on higher crypto prices. Expenses grew modestly by 11%, due to higher transaction costs, marketing spend and staff bonuses. Trading volume doubled while blended fee rate slightly down from the recent peak of 38bps in 3Q23 to 34bps. As a result, the company became profitable again with US$273m of profit (3Q23: -US$2m / consensus: US$10m), thanks to the strong rebound in crypto trading volume and high operating leverage. On 1Q24 outlook, the company guided that (1) it has generated US$320m of transaction revenue as of YT-14 Feb 2024 and (2) subscription and services revenue would go up further to US$410-480m.
Remain cautious over trading volume sustainability. We think the strong beat is largely expected and in-price, given (1) the trading volume surge since Nov 2023 was publicly available on a daily basis, and (2) the more-than-doubled share price since end-Sep should have largely reflected the volume growth. We think the surge in trading volume may not be sustainable, as (1) the 7-day daily average volume by exchanges peaked at US$50b right after Bitcoin spot ETF approval, and (2) despite Bitcoin price rebounded subsequently and reached record-high, the trading volume only rebounded to US$36b, thereby suggesting cooling off of trading interest amidst lower volatility. While we see little fee compression and cannibalisation in Coinbase’s business so far, these could start kicking in when crypto sentiment cools off. Maintain HOLD with TP slightly lifted to US$160, reflecting recent rebound in Bitcoin price.