Coinbase Just Posted a $719 Million Profit. Why Did Barclays Cut Its Target to $120?

Coinbase (NASDAQ: COIN | COIN Price Prediction) announced third-quarter net income of $719 million on October 29th, up 66% from $433 million a year earlier. Despite the strong profit, five banks have lowered their price targets. Barclays now holds the lowest target, cutting it to $120 from $149.

Coinbase shares trade at $151 in premarket trading, down 6.2% and 33.4% year to date. Bitcoin (CRYPTO: BTC) trades at $77,370, down 3.3% over 24 hours, indicating that both the stock and the cryptocurrency took a hit after the profit announcement.

Coinbase’s reported profit is closely tied to its Bitcoin holdings and its collaboration on USD Coin (CRYPTO: USDC), a stablecoin co-founded with Circle Internet Group (NYSE: CRCL).

What Is Inside Coinbase’s $719 Million Profit?

The $719 million profit is a GAAP figure, meaning it adheres to standard accounting principles. This includes valuing the cryptocurrency held for investment at current market prices each quarter, which produced $715 million of gains on these holdings plus $39 million on other investments. Bitcoin’s surge from $62,772 on August 1 to a 90-day high on September 21 contributed significantly to this increase.

However, adjusted net income—which excludes those gains, a $113 million tax impact, and a few other minor adjustments—drops to $78 million. Operating income, which represents profit from Coinbase’s core business operations, plummeted 87.2% year over year to $61.7 million, and revenue of $1.22 billion fell short of expectations by 0.5%, down 35.0% from the previous year.

Where Did Coinbase Generate Revenue in the Third Quarter?

Most of Coinbase’s operating segments exceeded forecasts. Transaction revenue, which comes from trade fees, reached $590 million, surpassing expectations of $527 million. Additionally, subscriptions and services, the recurring revenue stream, generated $570 million, also above the expected $562 million.

Stablecoin revenue, Coinbase’s share of the interest earned on USDC reserves, was the highlight of recurring revenue at $307 million, up 5% from the second quarter. This uptick reflects an average of $22 billion in USDC held in Coinbase products. Blockchain rewards, which Coinbase earns by staking cryptocurrency on behalf of clients, contributed another $86 million.

Adjusted EBITDA, a measure of cash profit, rose 60% from the second quarter to $333 million, beating expectations of $290 million and suggesting the core business operated more efficiently even as overall revenue declined.

Coinbase is also pivoting away from direct crypto trading. CFO Alesia Haas noted a 10% decrease in spot trading volume from the second quarter, while event contracts—which allow users to trade based on future events—crossed $200 million in annualized run-rate revenue, with event contracts and derivatives now accounting for about 25% of total transaction revenue.

In October, Coinbase completed integrating INTX (its international exchange) and Deribit (the options venue it acquired) into a single regulated global derivatives exchange. Haas said Coinbase captures about 50% of USDC’s overall economics.

Why Did Five Banks Lower Their Coinbase Price Targets?

Despite Coinbase’s strong earnings report, several banks have lowered their price targets. Jefferies cut its target from $183 to $174, Wells Fargo revised to $174 from $200, Canaccord adjusted to $275 from $300, Mizuho cut its target to $145, and Barclays lowered its target to $120 from $149.

Barclays has yet to release a detailed explanation for its change. However, the large gap between the $715 million gain and Coinbase’s operating income of $61.7 million appears to have raised concerns. Analysts generally focus on recurring earnings when valuing exchanges, and the lower operating income leads to a less favorable outlook.

Moreover, the fourth quarter began with lower transaction revenue, approximately $165 million through October 25, a trend Coinbase cautioned against assuming would continue. The decline in crypto volatility to multi-year lows and a 7.4% drop in Bitcoin prices over 30 days add to the uncertainty.

While management expressed optimism about future volumes, their statements invite some skepticism. Haas said event contracts are not cannibalizing spot trading, a hopeful view from the CFO’s perspective. CEO Brian Armstrong announced a rebound in trading volumes, but Coinbase acknowledged near-term volatility as traders adapt to the new platform structure.

USDC also faces competition, primarily from its creator, Circle—an ally and rival. Coinbase is also listing other dollar tokens like PYUSD and OUSD, making USDC just one of many options on the platform.

Coinbase has flagged risks related to lower off-platform USDC balances and interest-rate sensitivity, suggesting that declining rates could impact the revenue from the $307 million generated in stablecoin income.

Can Bitcoin or USDC Rise on Coinbase’s Quarter?

No, because the cause runs from Bitcoin to Coinbase, so the $719 million profit records Bitcoin’s third-quarter rally after the fact. Bitcoin is up 23.3% since August 1; Coinbase’s balance sheet gets part of that move as the $715 million gain, and a company booking a gain on a coin adds no new demand beyond whatever Bitcoin Coinbase keeps buying. USDC is built to hold $1, so the earnings leave its price at $1.

Barclays’ cut most likely reflects a profit mostly from Bitcoin’s price, while operating income fell 87.2%. If Bitcoin closes December 31 below its September 30 price of $83,576, Coinbase’s fourth quarter could swap the $715 million gain for a loss. So does a Coinbase price target of $120 still look like an outlier? Only if Bitcoin recovers above that level.

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