Coinbase Global Inc
Needham analyst John Todaro reiterates Coinbase with a Buy and a $70 price target.
The analyst dug deeper into COIN's May key metrics and believes that the retail percentage of total volume will be lower in Q2 FY23 than in Q1 FY23. While Q1 FY23 saw a return in retail appetite as momentum increased and meme coins saw a sudden resurgence, this appears to have been short-lived.
May volumes saw BTC & ETH as a percentage of total volume reach 64%--the highest level yet in 2023 indicative of further retail 'exiting' from the space, and would expect the retail mix of total volume to decline quarter-over-quarter (unless June sees an unexpected bump).
He found that volumes declined only 23% month-on-month, but alt-coin volume declined to its lowest level in FY23, indicating more erosion in retail.
COIN saw modest ETH staking deposit withdrawals over the month, while Lido and Binance saw increases. USDC market cap is grinding lower.
The analyst writes that DEXs are a real threat to Coinbase (and other centralized exchanges) as DEXs are, to varying degrees, 'decentralized' any user can create a market on the exchange. As such, DEXs offer significantly more assets for trading than Coinbase.
The analyst notes that COIN is ceding share, primarily to 'DEX' Uniswap. A decentralized exchange (DEX) is a digital currency exchange that allows users to buy crypto through direct, peer-to-peer cryptocurrency transactions all over an online platform without an intermediary. Uniswap is also a cryptocurrency.
Overall, the worsening volume picture is not the only cause of concern for Coinbase. Volumes across the industry have declined, and while we saw a modest uptick in Q1 FY23, downward volume trends continued in Q2 FY23.
The analyst brought his Q2 FY23 revenue estimates down to reflect the lower volume and mix share of retail vs. institutional after the alt-coin activity declines. He also lowered his FY23 revenue and EPS estimates.
The analyst is cautiously optimistic about an improving landscape in late FY23 and FY24 on 1) the halving in Q1 FY24 bringing back momentum, 2) easing regulation (draft bill put out this past week would term various crypto assets as commodities), and 3) easing monetary policy.
Price Action: COIN shares traded lower by 10.6% at $57.73 on the last check Monday.
