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Coinbase stock rises despite brutal quarter with 64% revenue decline

Yahoo Finance Live anchors discuss how Coinbase stock is trading after posting an earnings miss.

Video transcript

BRIAN SOZZI: All right. From Tesla and other names, such as Twitter, to Coinbase, shares are in focus here, up higher now in the premarket, a little bit of a reversal here compared to what we saw after hours yesterday, company reporting near 64% revenue drop in the second quarter. This following a brutal quarter for the stock, and this was just a brutal call. And I'm still trying to figure out if I want to take Coinbase to task for how it laid out its earnings release, talking in chapters.

I believe they wrote six chapters on their press release. And I'm trying to understand, are they serious? Are they taking the sell-off in their stock, the pullback, massively, in various lines of their business, are they taking this seriously? Or they're just having a great time at the expense of shareholders? I think I fall on the side is that they need to get a little more serious, don't have that type of fun on your earnings release.

BRAD SMITH: I think there was a lot of kind of leisureness, as well, when it came to how they were looking historically at previous crypto winters and where some of the most active traders historically and those who were early [? holders, ?] if you will, got into their crypto activity. And they mentioned on the call that it's true, "some of our US retail customers, they're trading less. The core users, they tend to hibernate. They transact less in these periods of uncertainty" and that they "observed similar behavior back in 2018, 2019."

But one of these things might not actually be like the other. The difference here is you have much more institutional holdings now than you did back in 2018 and 2019, which also means that, for Coinbase, regardless of how they've tried to diversify where their revenue is coming in from, including custody, which they talked about on the call, and some of the other services, even if they're seeing those transactions spread across other services, it still comes down to how they're going to retain a customer that actually proves to provide them revenue and profit margins, even in the time of a crypto winter, if you will.

JULIE HYMAN: I mean, I guess the plus side of that is that if you do have some institutional-- higher percentage of institutional ownership--

BRAD SMITH: Sure.

JULIE HYMAN: --that, in theory, would provide more of a floor for crypto prices, which eventually would-- but not right now, certainly, where we've seen a little bit of a recovery in crypto prices, but not enough to help them out. I would push back a little bit. I don't know that I found their release flippant, right. It felt more like that they were overexplaining, perhaps, what is going on in the industry with the various chapters. I don't know.

One thing that did stand out to me when they were talking about their outlook, right-- because their outlook for the full year for monthly transacting users is below what the Street was looking for, gives them room to miss than what the Street was looking for, but they also talk about "we are working hard to operate within the $500 million adjusted EBITDA loss guardrail that we committed-- communicated for 2022." And they said they're going to try to stick to that. Now, will they be able to? We're going to talk to Lisa Ellis of MoffettNathanson later on, and I'm definitely going to ask her that question, whether the company can stick-- they say-- the caveat, of course, is if prices don't further deteriorate.

BRIAN SOZZI: Well, they haven't earned the trust of investors. They've been laying off workers now. Their financials have massively underperformed the hype really spewed by CEO-- CEO and founder Brian Armstrong. But very important point, so that comment right there, Julie.

And then I'm looking at this note, good note from Mark Palmer over-- where is Mark Palmer-- BTIG. He is saying that the company's cash burn didn't set off any alarm bells. And there was a lot of concern coming into this quarter how will a crypto winter affect Coinbase? Will they have to go out there and raise cash? I believe we talked to one analyst warning if a crypto winter got bad, Coinbase may not even be around.

JULIE HYMAN: Right.

BRIAN SOZZI: Now, they exit the quarter with close to-- around $6 billion. So at least right now, it doesn't appear to be any massive drain on liquidity going on at Coinbase.

JULIE HYMAN: Maybe that's why the shares are higher. I don't know.

BRIAN SOZZI: That's--

JULIE HYMAN: Maybe CPI helped too--

BRAD SMITH: Well--

BRIAN SOZZI: Yeah.

JULIE HYMAN: Like it helped everything.

BRAD SMITH: --rising tide right now.