Coinbase Blows Past First-Quarter Earnings Estimates. Bitcoin’s Boom Bolstered Profits.

The company said its net income benefited from $737 million in pre-tax mark-to-market gains on crypto assets, most of which weren’t realized.

Coinbase shares fell 1.4% in after-hours trading Thursday to $225.60. They rose nearly 9% during regular hours.

The earnings were well above the 34-cent per-share loss on $773 million in revenue the company experienced in the first quarter last year, as the crypto industry continued to reel from the bankruptcy of crypto exchange FTX.

In the fourth quarter of 2023, the company made $1.04 in earnings per-share on $954 million in revenue.

Recent euphoria around

Bitcoin
’s

acceptance by major institutions has provided a boost to the company this year, but major threats to its business remain.

BlackRock
,

Fidelity,

Invesco

and other major firms launched the first Bitcoin exchange-traded funds in January, cheering traders who anticipated that the new funds would bring traditional financial advisors into crypto for the first time.

The euphoria provided a jolt to Bitcoin’s price. Bitcoin started the year at about $44,000 but surged as high as $73,000 in March. Coinbase and other crypto-linked stocks also benefited.

The high prices lured traders back to crypto. Coinbase said its first-quarter transaction revenue in the first quarter surged to nearly $1.1 billion from $529.3 million the quarter before.

In an interview with Barron’s, Coinbase Vice President of Investor Relations Anil Gupta said the platform gained new customers and saw some old customers reengage with trading. He said Coinbase grew marketshare in spot crypto trading in the quarter.

Lately, inflation worries have brought token prices back to Earth along with those of other risky assets. On Thursday, Bitcoin traded at about $58,750.

Despite the recent weakness, analysts have warmed to Coinbase. About a fifth of analysts tracked by FactSet rate the trading platform a Sell or Underweight versus the 41% of analysts who gave it that rating in January. Overall, analysts rate Coinbase a Hold with a price target of about $239.

One concern is rising competition from low or no-cost stock trading platforms such as

Robinhood Markets

and Fidelity, which have bolstered their crypto trading capabilities.

The pressures apparently aren’t leading Coinbase to cut prices just yet. Coinbase’s Gupta said the company’s average blended fee rate was about flat for the quarter, and that the company hadn’t cut fees for any customer group.

Mizuho Securities, a consistent bear on the stock, in a note after earnings said recent weaknesses would likely hurt the stock despite the strong first quarter. The analysts said Coinbase’s $300 million transaction revenue in April implied a run-rate 16% below that of the first quarter.

“While take rates were resilient (a positive), we still expect the stock to trade down,” the analysts led by Dan Dolev wrote. The firm rates Coinbase Underperform with a $145 price target.

Coinbase is also still under legal threat. The Securities and Exchange Commission last June sued the firm, accusing it of operating an unregistered stock exchange, which the company denies. A judge in March allowed most of the SEC’s case to move forward and the case will likely drag on for many more months, potentially dampening some investors’ interest in shares.

“Clarity is the ultimate goal and the court’s decision continues us on that path. We remain confident in the strength of our legal arguments and are fully prepared for an intensive discovery phase throughout the remainder of the year,” Coinbase said in an investor letter accompanying the earnings release.

Coinbase’s near-term profits might rise and fall with crypto, but winning the legal battle is most crucial to the stock.

Write to Joe Light at joe.light@barrons.com