Coinbase Global, Inc. (COIN 7.66%) released quarterly earnings on Aug. 9, and as expected, the cryptocurrency exchange had a terrible, horrible, no good, very bad day. Due to challenging crypto market conditions and the sharp erosion of its retail investor base, the company announced a $1.1 billion loss and a nearly 64% drop in revenue. Moreover, Coinbase warned that next quarter, it was likely that both trading volume and the number of monthly active users would fall again as retail investors continued to abandon crypto.
However, there is reason for optimism in all this. Coinbase has enough liquidity to get through the worst of the so-called "crypto winter" and has been taking serious steps to cut its expense base. And it's not like Coinbase has been sitting around doing nothing as crypto markets cratered. It recently linked up with BlackRock Inc. (BLK -0.10%) on a historic deal to bring crypto to institutional investors. If you are bullish on the long-term future of crypto, you have to be bullish on the long-term future of Coinbase.
Price targets for Coinbase
After Coinbase reported earnings, Wall Street analysts rushed to adjust their price targets for the embattled cryptocurrency exchange. The new price targets for Coinbase varied wildly. Some gave up on Coinbase entirely, setting a price target of $45, which would be a 50% drop from current levels. Others, though, predicted that Coinbase would outperform the market and set a $200 price target, which would be a doubling from current levels. And still others were noncommittal, suggesting that a price target of around $100 would be most appropriate for the cryptocurrency stock.
So why the wide divergence in views? It depends on how you view the current crypto market. If you view it as a purely retail-driven phenomenon, there is cause for concern because small retail investors are scaling back on their trading. Likewise, if you view the crypto market correction as primarily a U.S.-led phenomenon, there is also cause for concern, given the uncertainty hovering around the U.S. economy.
Reasons for optimism
I'm optimistic about the long-term prospects of Coinbase because the company has shown over and over again that it is in it for the long haul. It is taking steps to find new investors who will use its trading services, and it is looking for new markets for these investors to trade.
Coinbase is now courting institutional investors by partnering with BlackRock, the largest asset manager in the world with $10 trillion in assets under management, even as retail investors are leaving the platform en masse. This partnership will provide institutional clients and super-wealthy private clients access to Coinbase's crypto trading platform. If institutional clients begin to embrace crypto, that could possibly be a big win for Coinbase and lead to a rebound in crypto prices. As soon as Coinbase announced the deal with BlackRock, in fact, shares of Coinbase skyrocketed nearly 40% upward.
If the U.S. market is melting down, then it's time to go out there and expand internationally. At the beginning of the summer, Coinbase announced that it would continue with European expansion plans in markets like Italy, Spain, France, and the Netherlands. Coinbase Global has the word "global" in its name for a reason: It views the crypto market as a truly global opportunity. There are exciting crypto developments happening in places around the world, from El Salvador to Dubai.
Moreover, Coinbase has continually sought out new ways to attract and hold onto retail investors. For example, the company launched a new NFT marketplace in May to boost overall income and encourage users to choose Coinbase over rival cryptocurrency exchanges. While the Coinbase NFT marketplace launch came at an unfortunate time, there are signs that it could gain new traction going forward.
So, yes, Coinbase had a terrible, horrible, no good, very bad day when it reported earnings. And, for that matter, Coinbase has had a terrible, horrible, no good, very bad year. But I think all the bad news has been priced into Coinbase stock. As we've seen this summer, Coinbase stock can rally significantly on unexpected news, such as the BlackRock partnership news. Remember, when Coinbase went public in April 2021 during a moment of crypto euphoria, it was a $328 stock. Now, it's a $92 stock. If you believe that the crypto market is eventually coming back, then you should also believe that Coinbase is eventually coming back.