Coinbase: A Show-Me Story Under The New Regulatory Regime (Rating Downgrade)

Summary Coinbase is downgraded from buy to hold as valuation returns to its long-term average after a strong rally since April lows. Q2 results were disappointing, with weak EPS and revenue, and trading volume dropped 40% sequentially despite crypto ￰0￱ faces risks from data breaches, rising expenses, competition, and regulatory uncertainty but maintains solid free cash flow and long-term tokenization ￰1￱ are considered somewhat overvalued with mixed technicals; hold rating is maintained ahead of Q3 earnings, not bearish enough for a ￰2￱ Global, Inc. ( COIN ) has been on a wild ride since the April ￰3￱ bottomed at $142.58 immediately after Liberation ￰4￱ April 9 , I upgraded the stock from a hold to a buy.

I saw the plunge as an opportunity—the price-to-earnings multiple fell to under 20x. Indeed, it proved to be a solid entry ￰5￱ has returned 121% since that analysis, outperforming the S&P 500 by some 86 percentage points. Today, I’m downgrading the stock from a buy to a ￰6￱ valuation is back near its long-term average, while the technical chart is holding up ￰7￱ the stock is above what I consider to be fair value and COIN’s relative strength has been weak, the situation is not dire enough to warrant a double-downgrade to a ￰8￱ Returns: Bitcoin, Ether, Nasdaq 100, And Coinbase Stock All Have Comparable Performance ￰9￱ Back in July, COIN reported a weak set of quarterly results.

Q2 non-GAAP EPS of $0.12 missed the Wall Street consensus forecast by a whopping $1.37, while revenue of $1.42 billion, up just 3% from the same period a year earlier, was not impressive to the ￰10￱ traded lower by a stunning 17% in the session that followed, marking the sixth consecutive post-earnings ￰11￱ was also the worst fall after a quarterly report in at least the last three ￰12￱ of the November 5 Q3 report, the options market prices in a high 9.0% earnings-related stock price swing when analyzing the at-the-money straddle expiring soonest after the reporting ￰13￱ back on the quarter that was, trading volume slowed 40% sequentially over the April through June period, despite occasional intense volatility in the cryptocurrency arena.

Also, Ether’s meteoric rise began in the springtime, but that seemed to do little for the Financials sector ￰14￱ management team issued Q3 guidance, including the expectation that subscription and services revenue will be in the range of $665-$745 million. We’ll see if COIN’s forecast of higher crypto volume lends itself to better bottom-line ￰15￱ picture, the firm expressed some confidence that it could snatch some stablecoin market ￰16￱ given a more favorable regulatory backdrop, that very well could support EPS in the July through September ￰17￱ the while, the company aims to disrupt the industry through tokenization—a long-term project that may take years to ￰18￱ must manage its expenses, though, particularly as its headcount rose in ￰19￱ in the second quarter, operating expenses spiked due to costs related to a data ￰20￱ the earnings outlook, EPS growth does not appear strong in the years ￰21￱ fact, despite a more than doubling in the stock price, sellside EPS estimates have actually retreated modestly since my early-April ￰22￱ is a key factor in my rating downgrade.

I believe bottom-line forecasts are perhaps too depressed today, particularly in light of the solid revenue growth pace likely now through the out year. Moreover, profitability trends are solid—free cash flow per share is now $7.16. Thus, COIN is higher quality than what many investors might believe at first blush. Coinbase: Revenue & Earnings Forecasts, EPS Revision Trends Seeking Alpha On valuation , I have key ￰23￱ we assume $8 of normalized operating earnings per share and apply a 35x price-to-earnings ratio, then the stock should trade near $280.

That’s up from my $180 fair value estimate in April, a time when crypto prices were significantly lower and the macro-outlook was dire. Still, COIN trades a bit expensive on a price-to-sales basis. It’s a show-me story now, following the data breach costs and uncertainty regarding how much tokenization can be monetized in the year ahead. COIN: Now Expensive Across Valuation Metrics, Near Its Long-Term P/E Average Seeking Alpha Key risks for COIN include further client data breaches, increased competition, and uncertainty regarding future regulatory ￰24￱ unknown is how Coinbase can gain traction in international markets (beyond the favorable rules constructed under the GENIUS and CLARITY Acts).

Lower crypto prices would obviously hinder earnings ￰25￱ Analysis Seeking Alpha Looking ahead, corporate event data provided by Wall Street Horizon shows a confirmed Q3 2025 earnings date of Wednesday, November 5, ￰26￱ other volatility catalysts are seen on the ￰27￱ Event Risk Calendar Wall Street Horizon The Technical Take With a stretched valuation and stellar return off the April low, COIN’s technical situation is ￰28￱ in the chart below that shares are broadly trending higher, with a series of higher highs and higher lows since early 2023. Still, the all-time high notched just before its Q2 earnings report (above $440) is a key line in the ￰29￱ spot to consider is the long-term 200-day moving average, currently near $273.

The trend-indicator line is merely flat in its slope, suggesting an ongoing battle between the bulls and ￰30￱ now, I see near-term resistance close to $350, while support is apparent near $275. If crypto prices rebound (bitcoin climbing above $123,000 would be a boon), then a lingering gap just shy of the $380 mark could be in ￰31￱ picture, COIN has lagged the S&P 500 and Nasdaq 100 since mid-July, which is a negative signal. COIN: Shares Stuck Between Support and Resistance, Flat 200dma ￰32￱ The Bottom Line I have a hold rating on Coinbase. I see shares as somewhat overvalued, but technical signals are not quite bearish enough for me to downgrade the stock to a sell ahead of its Q3 report.