Coinbase Faces Downside Risk Amid Retail Fatigue, Despite Recent Share Upswing: Analyst

Mizuho analyst Dan Dolev reiterated the Underperform rating on Coinbase Global, Inc. COIN, raising the price target to $31 from $27.

Following an upswing in COIN shares (+170% YTD), the analyst sees a significant downside from here as lingering retail fatigue threatens COIN's most attractive revenue stream over the longer term.

However, the analyst also sees several near-term positives, including higher spreads, stabilizing retail market share vs. Robinhood Markets, Inc. HOOD in 3Q, and improving cost controls.

Retail activity remains the single greatest determinant of COIN's revenue and profitability. 

For perspective, retail comprised 95% of COIN's transaction revenue (and two-thirds of total revenue ex. interest income) in the third quarter.

While transaction revenue has been significantly boosted in 2023 by higher-than-expected transaction fees (particularly on the retail side), the analyst views pricing as an unsustainable growth lever over the longer term.

In fact, while the trading volume declines through 3Q at COIN have been well documented, the analyst notes that COIN's retail MTU (monthly transacting user) count has also steadily declined. 

This has driven a decline in trading volume per retail MTU to just ~$550 in 3Q, down from ~$640 in 2Q and an average ~$1,600 in 2022.

This is despite the price of Bitcoin rising over the last several quarters, which bucks a historical trend that saw users and volume per user grow during times when the price of Bitcoin has increased. 

The analyst said he would wait to see how this trend evolves in 4Q, particularly given the rise of BTC to the high $30Ks. 

Following the quarterly results, the analyst raised the FY23 revenue estimate to $2.933 billion from $2.662 billion, raising the EBITDA estimate to $851 million from $634 million. 

Price Action: COIN shares are trading higher by 0.34% to $93.18 on the last check Friday.