Coinbase Rises as Earnings Look Promising. And Dogecoin Is Coming.

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Coinbase

Global reported booming first-quarter earnings and revenue that were mostly in line with projections the company had made in April. The company clearly benefited from the frenzy for all things crypto in the quarter, its first since going public last month.

But the headline numbers may not be what moves the stock. The company’s guidance, and some details of the release, could have a bigger impact. What the release showed is that Coinbase’s growth is continuing to rise in the second quarter, but it’s having trouble forecasting full-year results because of the high volatility in the crypto market. And the company may have to add new assets to its platform to fully capitalize on the growth in crypto.

Indeed, on the earnings call, Coinbase CEO Brian Armstrong said that the company planned to add Dogecoin to its platform in the next six to eight weeks. The lighthearted crypto asset isn’t currently available on Coinbase, and that absence may have allowed other brokers to steal some of Coinbase’s thunder.

In addition, Coinbase (ticker: COIN) is clearly subject to conditions outside of its control. The stock was reeling on Thursday after Bloomberg reported that competitor Binance is under investigation by the Justice Department and Internal Revenue Service, which are looking into possible money laundering and tax offenses on the platform.

There is no indication that Coinbase is facing a similar inquiry, and one analyst predicted the Binance news would help Coinbase by making it seem relatively safer. Still, Coinbase fell 6.5% on the day. The stock was up 3% in after-hours trading following the earnings release.

Coinbase reported $1.8 billion in revenue, as it had previously projected. That is compared with $191 million in the first quarter a year ago. And Coinbase reported $771 million in net income, versus $32 million a year ago and the range of $730 million to $800 million that it had projected in April.

Coinbase has 56 million users and 6.1 million transact monthly (MTUs). It makes most of its money on transaction fees, so the 6.1 million number is key — unlike brokers that make money off client deposits, Coinbase is particularly dependent on people moving money as opposed to letting it sit.

The good news for investors is that Coinbase says the level of activity it saw in the first quarter appears to be continuing in the second quarter. “Coinbase quarter to date performance across our four key business metrics are trending to meet or exceed our first quarter results,” the company said in a shareholder letter. Trading volume is likely to meet or exceed first quarter levels if it continues at the current pace, the company said.

In a unique decision that showcases the unpredictability of the crypto market, the company released three levels of guidance depending on where the crypto market goes next. Because the industry is so volatile, Coinbase’s revenues appear to be harder to model than revenues for other companies.

Under a scenario where the crypto market keeps expanding, Coinbase expects its 2021 MTUs will hit nine million. If the market flattens out a bit, growing only modestly, Coinbase could hit seven million MTUs. And a decline in crypto assets and volatility, could cause MTUs to slump to 5 million, the company said.

Coinbase also appears to be finding success at adding new business lines. More than 1 million customers now partake in “staking,” where they lend out crypto assets and make interest. If the company can expand businesses like that, it can become less reliant on its volatile transaction revenue.

Coinbase also plans to add new assets faster as other platforms may be stealing its thunder. It may be losing customers to Robinhood, in particular, which offers Dogecoin trading whereas Coinbase does not. The enormous volumes of that asset have helped temporarily crash the Robinhood platform over the past few months.

“Our competitors are supporting certain crypto assets that are experiencing large trading volume and growth in market capitalization that we do not currently support, as well as offering new products and services that we do not offer,” Coinbase said.

Write to avi.salzman@barrons.com