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Coinbase Q2 earnings preview: what to expect


ArvinIG

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Find out what to expect from Coinbase’s earnings results, how they will affect the Coinbase share price, and how to trade Coinbase’s earnings.

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Source: Bloomberg
 
 

When is Coinbase’s results date?

Tuesday, August 9, after the market close, is when we get the 2022 second quarter results for Coinbase.

Coinbase share price: forecasts from Q2 results

All eyes are on whether Coinbase will negatively surprise once more after its first-quarter results where expectations of a positive reading suffered a loss of $1.98 per share. Revenue was a miss at $1.17bn instead of an expected $1.5bn. The total trading volume dropped massively, suffering a drop in retail monthly transaction users, yet it remained optimistic and 'focused on the long-term' and not just on aspects of crypto trading, with hopes it would emerge as a key and trusted player regardless of the path the overall segment takes.

Costs will remain an item in focus, even after Coinbase announced layoffs thus altering its prior plans for an increased headcount and signifying a phase of slower growth if not contraction as the sphere remains in a ‘crypto winter'. Crypto prices are trading at lower levels since mid-May and Coinbase’s share price though little changed after the big plummet following its 2022 first-quarter earnings release.

Such is the nature of Coinbase's share price. It can experience significant moves based on not just where the overall cryptocurrency market moves but on how immune it is to what have been successive stories of failures, concerns over liquidity, and withdrawals for financial institutions within the crypto sphere.

Investors can breathe a sigh of relief following Coinbase's clarification in July regarding its lack of exposure to insolvencies among clients and counterparties. Coinbase's financing book hasn’t recorded any losses, and it isn’t falling into the trap of lending out customer funds. It might not mean as much for the retail sector which accounts for a clear portion of its revenue, but is a crucial one for institutions looking for trust and reliable counterparties who lead on volume. That news was followed by negatives with reports of an SEC investigation being dropped from the ARK fund.

While investors will be noting any plans in light of the crypto atmosphere and given that Coinbase is trading amongst the crypto majors that drive its revenue, investors are worried over how Coinbase will fare against rising competition from crypto exchanges attempting to move up the volume rankings. With news in June that Binance.US was cutting fees for plenty of Bitcoin trades to zero, and worries that it’ll eventually carry over into other exchanges over time if it causes an exodus of traders.

In all, monthly transacting users might find it more difficult to transact when prices are in retreat, as profits usually drive more trading, and losses mean they’re in a wait-and-see mode. Lower crypto prices combined with expectations of lower participation and trading sizes can only translate into lower fees that the crypto exchange can take in (and taker/maker fees as a percentage), and given it makes the bulk of its revenues means it’s expected to be much lower this time around at around $830m.

As for earnings, expectations are for another loss, and for it to widen to -$2.68 per share, an estimate that’s suffered lower revisions over the past few months. Longer-term estimates are usually more difficult as it requires a more stable underlying crypto market.

As for analyst ratings, it remains the majority buy amongst them, with the notable downgrade from Goldman Sachs shifting from neutral to sell in late June. The average target price is still very much above its current share price.

Coinbase weekly chart with key technical indicators

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Source: IG

Trading Coinbase’s Q2 results: technical overview and trading strategies

A glance at the chart above (and that of nearly anything crypto-related on the weekly time frame really) and it doesn’t take much to realize that even after oscillations over a couple of months or so and it’s still a bearish picture, with prices at the upper end of its long-term bear trend channel.

When it comes to its DMI (Directional Movement Index), its DI- is still above its DI+ by a healthy margin, but that margin is dropping, and so too is the ADX (Average Directional Movement Index). The reading is still in trending territory but past its peak figure can be found around mid-July. Positives include its RSI (Relative Strength Index) is no longer in oversold territory, and prices are moving closer to the middle of the Bollinger Band and away from the lower extremes.

Since the weekly time frame incorporates historic bearish moves that we saw in March through mid-May, the technical narrative gets less negative when zooming into shorter-term time frames like the daily. With prices recently coming off the upper end of far more narrowed Bollinger Bands in that time frame where they’ve ‘acclimatized’ to more rangebound sessions since the last earnings release, and a positive DMI here as opposed to negative on the longer-term weekly time frame.

Classifying the technical overview depends on which time frame you’re looking at, with the daily more ‘consolidation – volatile’ (volatile on any underlying updates that include next week’s earnings, but moving back towards an average absent), while the weekly thus far averaging lower, provided its bear trend channel can hold.

That makes it a bit more bear average than a bear trend (an ADX reading in trending territory usually gives more weight to a trend, but a wider channel combined with weeks of oscillations means trend-like moves haven’t been the rule rather the exception), but as always it needs pointing out that we’re looking at technicals ahead of a major fundamental event that can easily cause prices to experience more volatility even in the ‘safest’ of more established companies.

There’s also the matter of levels, with an RSP (Relative Starting Point in the table below) to 1st level difference that’s over 20% of the value of the RSP. A common theme amongst prices of cryptocurrencies and crypto-related shares where higher historic pricing means emulating average weekly moves that now constitute a larger percentage of current lower prices becomes a more difficult task. A $15 move when it was $300 translates into a 5% price change, but the same $15 price change on a lower $70 is over 21%. The daily time frame’s RSP to 1st level difference where it doesn’t incorporate the price action pre-June is only $3.

 

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Source: IG

IG Client sentiment* and short interest for Coinbase shares

Retail trader bias remains in extreme buy territory, dropping a notch from 88% two weeks ago to 87% as of this morning. As for short interest, it’s at over 22% with 33m shares shorted of roughly 148m floating. In comparison, the companies where we’ve done earnings previews usually have sub-1% short interest readings.

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Source: IG

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from two weeks prior.

 

Monte Safieddine | Market analyst, Dubai
02 August 2022

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