If you’re a Coinbase shareholder, prepare for a disappointing Q2

The current macroeconomic uncertainty, characterized by soaring inflation, higher interest rates, the war in Ukraine and fears of a recession, has been a major headwind for the crypto market as investors seek safer assets to put their money in. And this situation has had a particularly severe impact on Coinbase (PIECE OF MONEY 16.02%)which just posted a 27% decline in year-over-year revenue and a net loss of $430 million.

Coinbase shareholders feel the pain, as the stock more than 40% cratered in April only. Investors should expect things to get worse before they get better.

More pain for investors

From early April to May 12, the cryptocurrency market down about 39%. And that weakness caused Coinbase’s management team, led by co-founder and CEO Brian Armstrong, to provide a disappointing second quarter outlook.

They expect retail monthly transaction users (MTUs), defined as a user who makes at least one transaction on the platform in the previous 28-day period, to be below 9.2 million of retail MTU in the first quarter. Consequently, the volume of transactions in the second quarter will also be lower than the $309 billion recorded during the period from January to March. April’s trading volume only totaled $74 billion.

Given that Coinbase generated 87% of its overall net income from transaction fees in Q1, it’s not hard to see that with fewer retail MTUs and less trading activity, the company’s bottom line in the second quarter will be worse than the previous quarter. That means investors can likely expect continued losses on the income statement, especially in light of the company’s aggressive hiring spree.

Image source: Coinbase Global.

The culprit, unsurprisingly, is the soft crypto market. Coinbase’s business model thrives when crypto asset prices and crypto volatility are high, as this encourages retail and institutional clients to trade more often, which translates into higher revenue for the company. This is what happened in the fourth quarter of 2021, a record quarter for Coinbase.

However, with falling digital asset prices, the opposite is true, and this scenario results in poor performance metrics for Coinbase. If things turn around and the crypto market reverses things for the rest of May and throughout June, Coinbase’s financials could show a positive surprise.

But that’s obviously an incredibly hard thing to predict, so if you’re a shareholder, it’s best to listen to the management team and consider an investment in Coinbase with a very long-term mindset. Focusing on the next decade, instead of trying to figure out what will happen with crypto prices over the next quarter, is the right approach.

If you adopt this mindset, the potential returns of owning Coinbase stock can be life changing.

Comments are closed.