Coinbase’s NFT marketplace flops; what investors can expect going into earnings

Coinbase doesn’t deserve an exclamation point on its birthday — not after the horrid returns it delivered since going public.

Next week on May 10, Coinbase is expected to report its first-quarter earnings report. Here’s what investors can expect.

Coinbase’s NFT marketplace flops

At a conference this week, the CEO of Coinbase, Brian Armstrong, gave investors several reasons to be bullish on crypto (BBG) — expecting:

1/ “We’ll see a substantial portion of GDP happening in the crypto economy,” with 1B people having tried crypto within 10 years — 5x the current amount.

2/ “50% or more people in Washington are pro-crypto now.”

On April 20, Coinbase launched its long-awaited NFT marketplace into a slow and increasingly competitive NFT market:

• In its closed beta, Coinbase’s NFT marketplace had just 900 transactions (~$217K volume) in its first week from 650 users.
• Competitor OpenSea did $808M+ from 36,000+ users in the same period — 3,724x greater than Coinbase.

Coinbase isn’t the only one launching an NFT marketplace — they are among Kraken, Okcoin, GameStop and dozens of others. On Wednesday, Coinbase’s marketplace opened to the public — but the reception was even worse, with only 150 new user sign-ups.

Earnings incoming: Lower your expectations

Last week, Robinhood’s earnings report showed a significant drop in trading activity, foreshadowing a weak quarter for Coinbase. Next up, Coinbase faces a lot of uncertainty in its coming earnings report.

• Analysts are bracing for a bad quarter — with Wall Street consensus targets on $COIN’s price falling from $394 to $278 (Barron’s).
• Per analyst forecasts, earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to fall over 68% from a year ago.

Reliant on $BTC/ETH: At the end of 2021, trading made up 93% of Coinbase’s sales — and $BTC and $ETH made up 45% of this volume. Despite falling from 56% in 2020, Coinbase is still heavily reliant on these two tokens.

Contrarian view: Per Arca’s Chief Investment Officer Jeff Dorman (BBG), most analysts don’t see Coinbase expanding outside trading revenue in a “meaningful way.” But Dorman thinks they’re wrong. Instead, he believes “fundamentally, it’s just the cheapest stock in the world.”

Investors: Find the difference between the pictures

$COIN is down 56% compared to $BTC, down 25% in the past year. Looking at returns, $BTC would have been a better investment, but there are pros and cons with each:

• Bitcoin is still primarily driven by supply and demand — and there’s no set way to value its price.
• Coinbase has cash flow and earnings to value the company — but $COIN is also heavily reliant on Bitcoin’s movement.

$COIN’s recovery depends on a crypto rebound — but will crypto rise again? Ask any crypto enthusiast, and the answer will likely be a resounding yes. But ask Warren Buffett, and he wouldn’t even buy all the $BTC in the world for $25.