Summary Coinbase's institutional transaction revenue surged 272.5% YoY in Q2 2024, reaching $63.6 million, reflecting rising institutional demand. Subscription and services revenue increased 78% YoY, hitting $599 million in Q2 2024, supporting diversification beyond trading fees. Total trading volume grew 145.7% YoY, reaching $226 billion, with institutional investors accounting for over 83% of the volume. Revenue for Q3 2024 is projected at $1.26 billion, up 86.9% year over year, but slightly below Q2’s $1.4 billion. Wall Street's consensus price target for Coinbase is $243.87, offering a potential 38% upside from current levels. Investment Thesis Since our sell rating on Coinbase ( COIN ) last April, the stock has dropped 25%. While the company’s crypto-driven nature keeps us cautious, recent developments suggest bullish potential. Institutional transaction revenue surged 272.5% year-over-year (YoY) in Q2 2024, reaching $63.6 million. Additionally, a 78% rise in subscription and services revenue showcases Coinbase’s diversification beyond consumer trading. Although these factors support its growth, investing in COIN remains speculative and heavily dependent on Bitcoin’s performance post-consolidation. Downside risks persist for those skeptical of Bitcoin’s ( BTC ) rally. Critical Growth Subscription and Services And Institutional Transaction Revenue Based on its institutional transaction revenue, Coinbase has a solid performance with top-line growth. In Q2 2024, the company’s total revenue of $1.4 billion increased 108.2% YoY against $662.5 million in Q2 2023. With that, institutional transaction revenue rose to $63.6 million, up from just $17.1 million in Q2 2023, an increase of 272.5% YoY, signifying the growing demand from institutional players. The sharp rise in institutional transaction revenue stands against relatively more modest growth in consumer transaction revenue. This revenue segment increased to $664.8 million, with a 130% YoY growth. This mix points to the stable direction and scale of operations based on the platform’s trading volume. Shareholder Letter Q2 2024 Moreover, the total trading volume on Coinbase during Q2 2024 supports this narrative of institutional growth. Institutional trading volume reached $189 billion, a 142.3% YoY rise. In contrast, while still growing strongly, consumer trading volume has increased to $37 billion, a 164% YoY rise. However, institutional investors now make up a significant portion of the total trading volume, which was >83% in Q2 2024. The total trading volume for Q2 2024 reached $226 billion (+145.7% YoY). Within the top-line, one of the standout segments of Coinbase’s business has been the growth of its subscription and services revenue. In Q2 2024, this revenue stream reached $599 million, up 78% YoY . This growth was based on higher average USDC on-platform balances, increased USDC market capitalization, and higher average crypto asset prices. Stablecoin revenue in Q2 2024 was $240 million, up 22% sequentially (+58.8% YoY). This is primarily due to a 53% increase in average on-platform USDC balances and a 17% increase in average USDC market capitalization. Further, Blockchain rewards revenue grew strongly in Q2 2024, a 23% Q/Q increase (+111.3% YoY). The rise in blockchain rewards was primarily based on higher prices for SOL and ETH and $8 million in one-time validator rewards. Finally, Custodial fee revenue grew by 103% YoY to $35 million, benefiting from higher average crypto asset prices and the inflow of native units related to Coinbase’s role as custodian for core BTC ETF products. As a result, Coinbase’s total net revenue ~2x YoY hit $1.38 billion in Q2 2024 based on the aforementioned institutional growth and a diversified revenue base that includes both transactional and non-transactional streams. Coinbase’s Q3 Outlook: Slower Growth, But 38% Upside Potential Looking ahead, Coinbase’s Q3 2024 subscription and services revenue outlook may end at $530-$600 million. This guidance reflects the company’s focus on growing its non-transactional revenue streams, which have become much more critical since the volatility of crypto markets may hit hard on revenues based on transactions. The forecasted midpoint of revenue range for subscription and services is ~5.7% lower than Q2’s recorded subscription and services revenue of $599 million, which suggests a strong Q3 with some stabilization (or minor declines). Wall Street analysts expect Coinbase to report a top-line of $1.26 billion for Q3 with 86.9% YoY growth . The projected revenue of $1.26 billion is lower than the $1.4 billion recorded in Q2, which indicates a slowdown in Q/Q growth. For the short term, the consensus price target for Coinbase stock is $243.87, with a potential upside of 38.26% from its current price levels. This shows that the street remains optimistic about the company’s prospects despite the volatility inherent in the cryptocurrency market. Shareholder Letter Q2 2024 Fundamentally, the Price-to-Sales (forward) ratio for COIN stands at 8.52 , higher than the sector median of 2.94, with a 161% difference, suggesting that Coinbase is trading at a substantial premium relative to its sector, with higher growth expectations and its moat in the crypto-ecosystem. Regarding forward revenue growth, Coinbase’s forecasted growth rate of 21.6% is far beyond the sector median of 5.5%. It is a 291% difference based on the expanding adoption of cryptocurrencies, increasing institutional interest in Coinbase, and high subscription and services revenue growth. Data by YCharts Revenue Dependency On Crypto Trading Volume Volatility Coinbase’s top-line growth is critically dependent on the level of crypto trading volumes. Bitcoin holds the largest fraction of Coinbase’s trading volume and transaction revenue. In Q2 2023, Bitcoin held for 40% of the total trading volume . However, in Q2 2024, it dropped to 35%, and such a decline represents a decreasing reliance on BTC’s trading activity. Yet, over a third of all trading volume is still made up of Bitcoin. The percentage of Bitcoin’s transaction revenue also fell to 31% by Q2 2024, with a percentage-point YoY decline in the same period. Shareholder Letter Q2 2024 Besides the volatility in trading volumes, the company’s stock price positively correlates with the broader crypto market. Of course, when crypto prices sharply go up, Coinbase’s stock tends to rise on the back of higher trading activity. In turn, sharp price declines have often hit Coinbase’s stock when crypto prices come down. The drop in Bitcoin ETF volumes highlights a broader trend of diminishing institutional and retail investor interest in Bitcoin trading (not investing). Since Coinbase’s transaction revenue heavily relies on trading fees generated by high-volume trades. Overall, a drop in ETF activity may continue to reduce trading volumes on the platform directly. The company’s exposure to the crypto market’s cycles limits its ability to maintain stable growth during bearish periods. coinglass Takeaway Coinbase’s recent growth in institutional transaction revenue and diversification into subscription services position the company for long-term success, even amid crypto market volatility. Though the volatility will eventually decrease as it increasingly relies on non-transactional income streams, there may still be day-to-day fluctuations for some time. That said, investors should still contain expectations about this stock while its future performance is heavily pegged to the broader crypto market and, most importantly, to Bitcoin’s movement.
