Coinbase's performance fell short of expectations; is the continued stock price pullback an opportunity?

$Coinbase(COIN.US)$ Last week, the Q2 results were released, and the performance was disappointing, causing the stock price to immediately drop by 16%. However, a stock price retraction is not necessarily all risk; it may also present an opportunity for a bargain.

Let's quickly review the Q2 performance. Overall, the Q2 results were indeed poor, with net income of $1.4 billion and adjusted net profit of $512 million both falling short of expectations. Additionally, core Business revenue declined sequentially, with Trade revenue at $764 million, down 39% quarter-over-quarter, and subscription and service revenue at $656 million, down 6% quarter-over-quarter.

Familiar $Coinbase(COIN.US)$ mooers know that, $Coinbase(COIN.US)$ as a Cryptos Exchange, Trade revenue is its largest source of income, and its performance largely determines the overall direction of the company's Business.

Currently, Trade revenue has declined sequentially for two consecutive quarters, primarily due to a decrease in Cryptos trading volume.

Q2 trading volume was $237 billion, down 40% quarter-over-quarter, higher than the 32% decline in the overall U.S. market. Most concerning is that the decline in retail Trade was even more pronounced, reaching 45%. Since the fees for each institutional Trade are lower than those for retail Trades, the significant decline in retail Trade has a more severe impact on Trade revenue. $Coinbase(COIN.US)$

Another core business, subscription and service revenue, amounted to $656 million, a slight sequential decline of 6%. Breaking down the business segments, the stablecoin business, which accounts for over 50% of the revenue, saw a 12% sequential growth due to an increase in the average USDC balance. However, this growth was limited, and coupled with declines in other segments, it was insufficient to reverse the overall trend.

In addition to the decline in revenue, the cost side also faced significant challenges.

Q2 total operating expenses reached $1.522 billion, a 15% sequential increase, further compressing profit margins. This included $308 million in other operating expenses, which were costs related to user compensation and legal fees following a data breach in May. Excluding these, Q2 expenses decreased by 6% sequentially, showing some signs of improvement.

Of course, COIN's performance is not without its merits.

The company claims to be pushing a 'universal Exchange' strategy, aiming to put all assets on the blockchain and build a comprehensive on-chain trading platform. New products include tokenized real-world assets, stocks, derivatives, and more spot Cryptos, which will directly compete with platforms like Robinhood, Gemini, and Kraken.

Additionally, in the area of stablecoin payments, a stablecoin payment API was launched in Q2, supporting businesses, merchants, and developers to use stablecoins for payments. This will enable $Coinbase(COIN.US)$ to attract more corporate clients, such as $Shopify(SHOP.US)$ , with USDC payments now available in Shopify Payments.

These actions are key to breaking the deadlock for COIN, as core trading revenue is currently stagnant. Only by proactively expanding into more trading categories and improving infrastructure can there be a chance to change the current awkward situation.

From the stock price trend, since the new high in mid-July, $Coinbase(COIN.US)$ it has been in a continuous retracement for two weeks. Referring to the Gold Fibonacci retracement levels, the key support level for the current stock price is at the 50% retracement (approximately $294.6). Combining this with the RSI, which is running near 30, indicating an oversold condition, there is a potential for a rebound signal.

Of course, given the current market conditions and sentiment, it is not ruled out that the stock price may continue to retract. If the stock price effectively breaks through the 61.8% retracement level of the Gold Fibonacci (close to the MA250 year line), this would no longer be a retracement but a reversal, implying that COIN is likely to maintain a weak performance.

(PS: The above technical analysis is for reference only. Any technical indicators have their limitations and should not be directly considered as investment advice.)

In summary, for the next financial period, we need to closely monitor the two core businesses—trading revenue and subscription revenue—to see if they recover, with the key being changes in trading volume. Additionally, we should pay attention to the expense ratio, which is also crucial for net profit. Furthermore, we need to watch the actual progress of the company's 'Everything Exchange' strategy. If it is merely a grand plan without tangible results, we need to be vigilant.

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Risk Disclosure: This content does not constitute a research report and is for reference only. It should not be used as the basis for any investment decision. The information provided herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of the information are believed to be reliable, the accuracy or completeness of the content is not guaranteed. Additionally, no assurance is given as to the accuracy of any statements, views, or forecasts provided in this document.