Coinbase: S&P 500 Inclusion Marks Crypto’s Mainstream Moment

Summary Coinbase’s Q1 2025 results were mixed, with revenue at $2.03 billion and EPS missing estimates by 87%, but the market reaction was neutral. Subscription and services revenue, a key highlight, grew to $698.1 million, representing 34% of total revenue, showcasing resilience against crypto market volatility. Institutional trading volume dominated, but retail trading powered revenue, indicating strong retail sentiment for Q2 and potential transaction revenue uplift. Inclusion in the S&P 500 is a significant milestone, expected to drive programmatic buying, lower capital costs, and enhance Coinbase’s growth and valuation. What an incredible ride Coinbase (NASDAQ: COIN ) has had since I last covered it around new year’s eve last year. The price at that coverage “ Coinbase Potential As The Leading Crypto Exchange In 2024 ” was $146. COIN surged and reached a high of ~$345 in early December, printing 136% gain at that time. COIN has retraced since the December high, mostly linked to general market headwinds amid the tariff wars. COIN now trades at $207, meaning a 41% since last coverage. With the market beginning to rebound, as trade tensions particularly between the U.S. and China begin to ease, COIN is on the cusp of regaining upward momentum since the December high. Author’s COIN rating history (Seeking Alpha) Q1 2025 results were announced few days ago, and I’d say they weren’t exactly impressive or disappointing either – they were a mixed bag. Revenue for the quarter was $2.03 billion, missing estimates by a mere 1.8%. Coinbase reported $66 million in net income and $0.24 EPS – an 87% miss in EPS. Market reaction to the latest earnings has been neutral. COIN has seen a very marginal ~2% change in price since results were announced five days ago. COIN is, however, trading about 10% up after hours today May 13. And this is unrelated to the latest earnings, but is linked to the inclusion of COIN in the S&P 500 index. This article will cover what I think are the main highlights and trends to look for when analyzing Coinbase based on its financial trend, as well as the fresh prospect (and potential near-term catalyst) the inclusion into one of the world’s most followed indexes presents for COIN and its long-term holders. Subscription-Based Recurring Revenue is the Bedrock for COIN For me, the financial highlight for Q1 is Coinbase’s broadening moat of recurring revenue among crypto companies. Coinbase is starting off 2025 with continued strength in subscription and services (S&S) revenue. COIN’s S&S revenue held steady above $500 million throughout 2024. At the time I last covered COIN in January last year, I referenced the latest financial results at the time, which were for Q4 2023. S&S revenue at the time was $375 million and represented around 39% of total revenue. Fast forward to the latest results (Q1 2025), S&S revenue sits at $698.1 million and represented around 34% of total revenue in Q1. It is very encouraging that subscription and services revenue have grown alongside total revenue and still represent an anchor of sales. This has been one of the core structural trends I’ve watched since holding COIN. An expanding base of recurring and predictable revenue that potentially insulates earnings from short-term crypto market volatility. Many a crypto company lacks the infrastructure for recurring revenue, hence the susceptibility to volatility and unpredictable sales, which makes it hard for investors to stick around during crypto bear markets when the music stops. Coinbase When we examine COIN’s S&S revenue on an aggregated quarterly basis, we see that every line item of the revenue composition has grown in tandem. The two biggest drivers of S&S revenue are from stablecoin revenue (mostly USDC) and blockchain rewards. This composition is interesting. One part of it (blockchain rewards) is linked to market sentiment, the other (stablecoin revenue) is linked to prevailing interest rates and institutional adoption of USDC. This is a picture of a balance between cyclical crypto market exposure and macro exposure. For readers who may not be aware, Coinbase co-manages the USDC stablecoin with Circle and generates yield from the underlying reserves, which are primarily short-dated U.S. T-bills. Coinbase currently earns a portion of the interest income, around 50% of the income. So far this year, and in likely to be so in the the near term, rates have held steady, and with the market rebound and positive crypto market sentiment lately, the setup for Q2 S&S revenue is quite strong. Coinbase has every reason to maintain over $500 million in S&S (note that this is super conservative compared to Q1 and I expect it to be much higher) as the trend has been since last year. And a modest forecast of $500 per quarter implies a potential $2 billion annual run-rate from S&S. The only overhang I see for this runrate is if Fed rates decline, which could materially impact USDC interest income and in turn soften S&S revenue. Coinbase For the purpose of this piece, I feel there isn’t much surprise surrounding transaction revenue, which has been volatile over the past year. However, the market rebound means Q2 will likely see a significant lift in transaction revenue as well. One of the more insightful aspects of Q1 trading activity is the composition of the trading volume. Institutional volumes dominated the trades, accounting for ~80% of total volume ($315 billion volume), while retail trading made up only ~20% ($78 billion volume). The revenue dynamics show a striking contrast from the volumes. Institutional transaction revenue was $99 million, while consumer transaction revenue was $1.1 billion. Basically, institutions drive volume, but it is retail that continues to power the bottom line. Going into Q2, the current renewed retail sentiment bodes well for Q2 results. Transaction revenue is expected to be a beat also. COIN, BTC-USD, HOOD, year-to-date price trend (Seeking Alpha) Despite not-so-bad financials and a generally positive outlook for Coinbase since Q4 last year, COIN has struggled to move the needle so far this year. A direct peer, Robinhood ( HOOD ), is up 54% YTD, while Bitcoin is also up about 8% YTD. COIN still lags behind at -16%. COIN’s underperformance has held steady even in the wake of impressive rebounds across the crypto market, UNTIL last night’s news of COIN’s inclusion into the S&P 500 index – showing surge in after market’s trade. Seeking Alpha COIN’s inclusion into the S&P 500 is a big deal, though COIN already has sizable institutional ownership at around 57% of shares. The $30 trillion fund universe that tracks the S&P 500 is now about to rotate into COIN. As we all know, S&P 500 inclusion means programmatic buying and consistent demand for COIN. And this news comes at no better time than during a market-wide rebound. While this isn’t exactly the fundamental catalyst for the longer term, at least COIN will finally move the needle for the first time this year (as extended-hours trading reactions have already shown). Data by YCharts Now, since 2023, Coinbase has grown revenue faster than total OpEx quarterly, and has now maintained operating leverage consistently over several quarters. There is an important but likely to be overlooked consequence of the S&P inclusion, which is Coinbase’s potential to raise capital even more cheaply moving forward, and that ability to finance growth and expansion at a more favorable cost means a lower WACC and direct enhancements to ROIC. Data by YCharts At 8x P/S and 33x forward P/E, COIN isn’t trading at a high premium at the moment, in my view. As recently as last December, COIN was trading at over 15x P/S and over 50x P/E. Considering the YTD drawdown, all the fundamental improvements highlighted so far, and the general rebound of the crypto market, now coupled with the S&P 500 inclusion, a re-rating is imminent for COIN. Takeaway Q1 results were a mixed bag. However, when you zoom out on the longer-term financial and operational trend of Coinbase, you find sustained operational resilience. As we have seen with the strong operational leverage and the expansion in recurring S&S revenue, Coinbase is positioning itself to become a SaaS-like high margin business. The S&P 500 inclusion is a notable milestone. And the fact that COIN gained this inclusion before HOOD or even Strategy ( MSTR ), already makes COIN the crypto stock of the year, in my view. Last year, I highlighted Coinbase’s potential as the leading crypto exchange in 2024; now, in 2025, I can boldly say, “Coinbase has the potential to be the leading crypto company in 2025.” This isn’t a stock I revisit very often. My expectations on COIN are long-term. Coinbase is very much worth the Buy recommendation.

Source: Seeking Alpha