Coinbase Stock: Q1 Earnings Review, I Was Wrong Initially (Rating Upgrade)

Summary Despite Q1 FY2025 revenue and EPS misses, Coinbase Global’s stable margins and strong crypto market prospects suggest better dynamics for FY2025-2026. Q1 saw a 19% QoQ drop in transaction revenues but a 16% YoY increase, with subscription and services revenue hitting an all-time high. Coinbase’s strategic focus on the derivatives market, including the $2.9 billion Deribit acquisition, should yield long-term gains despite short-term revenue impacts. Given COIN’s volatile earnings growth and fair valuation, I upgrade my rating to “Hold” pending more consistent earnings visibility and clarity. I upgrade COIN stock to “Hold,” acknowledging strong growth initiatives but citing the need for greater earnings clarity, visibility, and consistent beats before a “Buy” rating is warranted. Intro & Thesis You’re reading my third article on Coinbase Global ( COIN ) stock, and although my very first bearish article played out as I expected, I missed my chance to upgrade COIN from “Sell” when it became clearer that the firm’s prospects had started to improve. Here’s the link to my coverage history . Time goes and I think it’s never to late to admit mistakes. Yesterday, COIN published its fiscal Q1 FY2025, missing on both ends of consensus estimates. Nevertheless, I believe the second quarter and FY2025-2026 overall should mark better dynamics as its business margins stay relatively stable and the general strength in cryptocurrency markets will likely drive up volumes and provide more top line growth opportunities. Coinbase Q1 Earnings Review Coinbase reported Q1 total revenues of ~$2.03 billion, missing the $2.09 billion consensus, while its non-GAAP EPS of $1.94 was also shy of the $1.98 estimate. It was mainly a result of a 19% QoQ drop in transaction revenues because as you might remember, there was a a huge inflow of new investors to the crypto market during Q4 as everyone was expecting Trump driving up huge rally in Bitcoin ( BTC ) and alt-coins. That excitement cooled down in Q1, but on a positive side here I should note, that Q1 transaction sales were up >16% on a YoY basis with trading volume being up by about 25.9%. As a result of lower transaction revenues, Coinbase’s adjusted EBITDA reached $930 million for the quarter, down by 27.9% and 7.9% QoQ and YoY, respectively. What’s quite important, the revenue segment called Subscriptions and Services, where the firm makes money from staking, custody, and stablecoins, soared to an all-time high of ~$698.1 million (+9% QoQ), so there were some bright spots on a QoQ comparison, too. For the upcoming Q2 earnings the management expects subscription and services revenue between $600 million and $680 million, so it;’s going to be down on a QoQ basis. Given the top and bottom line misses, as well as the pragmatic guidance for Q2, the market’s post-earnings reaction is understandable to me – the COIN stock is down almost 3% as I’m writing these lines. Seeking Alpha, COIN’s main page But I see nothing dramatic in COIN’s results in Q1, and the market actually seems to agree with me on that (otherwise we’d have seen a much larger drop). The management seems to bet on derivatives market for crypto, and it’s slightly impacting the short-term transaction revenues in a negative way: Among the contributing factors to the QoQ drop in transaction revenue the management noted “strategic investments in the derivatives trading business through rebates and incentives” and “a shift in spot volume mix towards market makers who typically command lower fee rates”, according to the latest earnings call. Also, accompanying the Q1 results, COIN agreed to acquire Deribit – the world’s leading crypto options exchange – for ~$2.9 billion (~$700 million in cash and ~11 million COIN shares). I think this strategic focus should pay back massively in the next few years as a) the crypto derivatives accounted for 74.8% of the total crypto trading volume and b) the global crypto trading platform market is projected to have a CAGR of 12.6% between 2025 and 2034 . The short-term pain is very likely to translate to a long-term gain in this particular case, in my view, as Coinbase’s TAM/SAM and market share expand simultaneously (after this M&A deal, Coinbase becomes “the number one crypto derivatives platform globally by open interest”) Alesia Hass, the firm’s CFO, noted on the latest call that Coinbase has “over 200 institutions, BlackRock, Stripe, PayPal, others that already are relying on their rails for custody, liquidity and Prime is the standard for institutional access.” I think with the above-mentioned expansion and the ongoing plans to expand internationally, the company’s earnings should eventually explode as they stabilize OPEX and CAPEX over time. The Street sees it the other way, likely primarily focusing on Q1 and previous management’s guidance – at least this is how I see it in latest earnings revisions for the next few quarters: Seeking Alpha, COIN At the same time, the addressable market for crypt exchanges keeps growing steadily. For example, the number of addresses with a balance over $1, which is a crude measure of “hodler” demand – reached a new high of 48 million, according to Grayscale’s study, and while the amount of monthly active on-chain users stayed flat on a YoY basis, the overall dynamic looks OK for Coinbase and its peers. I think that as they keep investing in derivatives market and eventually shift their focus on higher profitability, their EPS should get a boost. COIN Stock Valuation Update According to the same study by Grascale that I cited above, the valuations of crypto market players declined massively in Q1: Grayscale Since the beginning of calendar 2025, COIN’s forward P/E ratio declined from ~35-40x to 27.7x at the time of this writing, making COIN quite fairly valued, in my view. Data by YCharts The problem with Coinbase, I believe, is its volatile earnings growth. While the consensus foresees a long-term EPS CAGR of approximately 8.5% (for the next 10 years), this growth is unlikely to be smooth, so to speak. For example, FY2025 is expected to mark a YoY decline because FY2024 set too high a bar for comparison. Seeking Alpha, COIN That’s what keeps me from “Buy” this time: The stock’s volatility is unlikely to go anywhere as long as Coinbase’s growth strategy hinders profitability. Bottom Line “While I do think that COIN is doing everything right regarding its attempts to drive growth from the derivatives and subscription and services segments, investors would likely need more clarity, earnings visibility, and also consistency in earnings beats in the coming quarters for these factors to catalyze the stock price to the upside. At least, this is how I assess the medium-term prospects for COIN. Before it happens, the current P/E multiple of 25-27x seems to be fair, even if we apply a premium to the current EPS consensus estimates. So I decided to upgrade my rating to “Hold”. Thank you for reading!

Source: Seeking Alpha