Coinbase Global Inc. (COIN Quick QuoteCOIN - Free Report) is expected to report an improvement in its top and bottom lines when it reports third-quarter 2024 results on Oct. 30, after the closing bell.

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The Zacks Consensus Estimate for COIN’s third-quarter revenues is pegged at $1.3 billion, indicating 87.2% growth from the year-ago reported figure.

The consensus estimate for earnings is pegged at 39 cents per share. The Zacks Consensus Estimate for COIN’s third-quarter earnings has moved up 11.4% in the past seven days. The estimate suggests year-over-year growth of 4000%.

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Decent Earnings Surprise History

Coinbase’s earnings beat the Zacks Consensus Estimates in three of the trailing four quarters and met in one, the average surprise being 353.09%. This is depicted in the following chart.

Image Source: Zacks Investment Research

What the Zacks Model Unveils for Coinbase

Our proven model predicts an earnings beat for Coinbase this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. 

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: Coinbase has an Earnings ESP of +1.08%. This is because the Most Accurate Estimate of 40 cents is pegged higher than the Zacks Consensus Estimate of 39 cents.

Zacks Rank: Coinbase currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Shape COIN’s Q3 Results

The third-quarter performance of Coinbase is likely to have benefited from increased trading volume due to higher volatility. Crypto trading remains a major revenue driver for COIN. The Zacks Consensus Estimate for trading volume is pegged at 226.6 million.

The intensifying focus on international expansion, growth of derivatives and spot trading and integration of USD Coin into the crypto economy are likely to have fueled the two largest revenue streams — trading fees and Stablecoins.

Higher crypto asset volatility, coupled with improved crypto asset prices, is likely to have favored transactions in the third quarter. The Zacks Consensus Estimate for transaction revenues is pegged at $626.2 million.

The company estimates third-quarter 2024 transaction expenses to be in the mid-teens as a percentage of net revenues.

Subscription and services revenues are likely to reflect lower average price of Ethereum, cut in interest rate, and an increase in expenses related to USDC as COIN continues to drive global adoption of USDC. Coinbase estimates third-quarter subscription and services revenues to be between $530 million and $600 million. 

Coinbase estimates technology and development and general and administrative expenses in the third quarter to increase, attributable to increased customer support and infrastructure expenses associated with higher trading volumes. It estimates the metric to be between $700 million and $750 million.

An increase in digital marketing spending is likely to have increased sales and marketing expenses. COIN estimates sales and marketing expenses to be in the range of $160 million to 210 million in the third quarter.

Investments in technology to enhance operational efficiency and prudent expense management are likely to have lowered costs and improved margins. We expect technology & development and general & administrative expenses to increase to $700-$750 million.

Price Performance and Valuation

COIN shares have gained 21.8% year to date compared with the industry’s growth of 12.5%.
 

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Coinbase’s stock is overvalued compared to its industry. It is currently trading at a price-to-earnings multiple of 81.28, higher than the industry average of 23.44.  
 

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However, it is still cheaper than other industry players like Envestnet Inc. (ENV Quick QuoteENV - Free Report) and Fiserv Inc. (FI Quick QuoteFI - Free Report) , whose shares are trading at a price-to-book multiple of 30.6 and 16.17, respectively.

Investment Thesis

Coinbase looks poised to benefit from higher crypto asset volatility and prices. It has been deepening its roots in international markets. Strengthening banking connections, locking of new licenses and expanding tailor-made product ranges to meet unique customer preferences should help COIN grow rapidly in the long run. 

Coinbase has been investing in infrastructure and foundational platforms like Base, designed to optimize Ethereum's infrastructure by increasing the network’s speed and affordability. 

Technology and development should continue to increase, primarily driven by higher variable expenses, as the company remains focused on accelerating growth via strategic initiatives. Nonetheless, COIN stays focused on maintaining a low-cost structure. 

Return on capital, signifying the company’s ability to use shareholders' funds to generate returns, compares unfavorably with the industry average. 

Though cash and cash equivalents have been improving, COIN’s debt level has also been increasing and compares unfavorably with the industry average. However, an improvement in times interest earned, which compares favorably with the industry average, offers some respite. 

Conclusion 

COIN's efforts to accelerate growth in the crypto market, increase market share in spot trading on consumer and institutional trading platforms and improve trading experience, along with continued innovation and cost-control initiatives, should favor its performance over the long run.  

However, given its premium valuation and weak return on capital, new investors can wait for a better entry point.