Coinbase Global Inc. could potentially stun Wall Street with its first profitability in two years. This achievement is attributed to Bitcoin’s recent revival and cost-saving measures implemented during the previous cryptocurrency downturn.
Coinbase According to Needham & Co.’s John Todaro, Coinbase may defy market expectations by reporting a net income of $103 million in its upcoming fourth-quarter results. This forecast stands in contrast to the consensus among analysts surveyed by Bloomberg, who anticipate a loss of approximately $16 million for the crypto exchange. The profitability outlook is fueled by Bitcoin’s robust performance, which saw a nearly 60% surge in the quarter, culminating in a 157% annual rally before the launch of US exchange-traded funds (ETFs) in January.
Historically, exchanges like Coinbase thrive during bullish market conditions when increased trading activity, both from retail and institutional investors, boosts fee revenue. However, concerns linger over Coinbase’s recovery, given its previous struggles during the industrywide downturn in early 2022. Despite a recent 7.8% stock price increase following JPMorgan’s upgraded recommendation to neutral, Coinbase shares have dipped about 2.2% since December, remaining below half of their 2021 record high.
The Unprecedented Forecast
In a stark departure from prevailing sentiments, Needham & Co.’s John Todaro has set forth a forecast that challenges the consensus among his peers. Todaro anticipates that Coinbase could report a net income of $103 million for the fourth quarter. This unexpected projection stands in contrast to the prevailing outlook, with many analysts surveyed by Bloomberg predicting a loss of around $16 million or 5 cents per share for the crypto exchange.
The potential return to profitability signals a pivotal year for Coinbase, according to Todaro, setting the stage for a substantial recovery in 2024. While analysts foresee a $27 million loss in 2024, Coinbase aims for a net income of $1.2 billion this year, reflecting a significant turnaround. However, uncertainties persist, with questions about the re-engagement of US retail users and the impact of ETFs on Coinbase’s core business model.
Factors Influencing the Outlook
Bitcoin's Resurgence
The recent surge in ETFs investing directly in Bitcoin raises concerns about users opting for this route instead of trading on Coinbase, particularly as many ETFs currently offer fee-free transactions. The threat of diminishing trading fees has prompted Coinbase to adjust its fee structure, with a potential impact on market share. Additionally, ongoing legal battles, including a lawsuit from the US Securities and Exchange Commission, remain potential hurdles for Coinbase’s outlook.
Cost-Cutting Measures
Coinbase’s resilience during the crypto downturn that commenced in early 2022 has been underpinned by strategic cost-cutting measures. The exchange, led by co-founder and CEO Brian Armstrong, implemented significant expense reductions, including workforce adjustments. These measures played a crucial role in steering the company through challenging market conditions.
Market Dynamics and Investor Sentiment
Despite these challenges, analysts like Owen Lau of Oppenheimer & Co. believe that Coinbase can shed its image as an unprofitable company, emerging stronger after intense regulatory scrutiny. The coming quarters will be crucial for Coinbase as it navigates evolving market dynamics, regulatory landscapes, and the potential ramifications of new financial instruments like ETFs.
Analyst Perspectives
The market’s perception of Coinbase as an unprofitable entity is a sentiment that analysts like Owen Lau of Oppenheimer & Co. believe can be dispelled. Lau suggests that there might be a shifting narrative surrounding Coinbase, especially if the upcoming financial results showcase a positive trend.
Conclusion
As the crypto community eagerly awaits Coinbase’s financial revelations, the prospect of a surprising return to profitability underscores the resilience and adaptability required in the dynamic world of digital assets. Whether Coinbase can defy the odds and deliver on these optimistic forecasts will undoubtedly be a focal point for investors and industry observers in the coming weeks.