Should you buy Coinbase stock on post earnings weakness?

Coinbase Global Inc (NASDAQ: COIN) is extending losses after the bell following the release of its Q2 report that hardly had any bright spot. The stock lost 11% heading into the earnings print on Tuesday and slid another 5.0% after-hours.

Coinbase Q2 financial highlights

• Swung to a $1.09 billion loss that translates to $4.98 per share
• This compares to the year-ago $1.60 billion net income ($6.42 a share)
• Revenue tanked 60.5% on a year-over-year basis to $803 million
• Consensus was $2.47 of per-share loss on $874 million in revenue

The crypto exchange ended the quarter with 9.0 million monthly transacting users, down 0.2 million sequentially, but better than 8.7 million expected. Last week, BlackRock partnered with Coinbase to offer its institutional investors access to Bitcoin.

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Is Coinbase stock worth buying here?

“COIN” is down more than 65% for the year. Explaining if that’s an opportunity to buy Coinbase stock on a deep discount, Mizuho’s Dan Dolev said on CNBC’s “Closing Bell: Overtime”:

The stock is a no go because what we haven’t seen yet is the retail trading fees come down, and with all the competition, the next leg to the story is price contraction on that retail take rate. They’re still charging way too much money and that’ll be the next down leg in the stock.

His $42 price target on the Coinbase stock represents another 50% downside from here.

What else was noteworthy in the Q2 report?

Other notable figures include trading volume that plunged to $217 billion – roughly in line with Street estimates. Retail was down 68% while institutional volume fell 46% YoY. Dolev added:

Some people might get excited about the 3-bps uptick in the take rate on the retail side. But it’s up for the wrong reasons. They’re actually losing share to FTX and Crypto.com on the prosumer side. Because of that there’s mix shift towards the long end of the retail trades. So, it’s actually getting excited about a bad thing.

According to Coinbase, total operating expenses climbed 37% YoY, including the non-cash crypto related impairment of $377 million. Here’s Sam Bankman-Fried’s take on Coinbase that’s spending over $4.0 billion on payrolls.  

In June, Coinbase said it’s cutting its workforce by 18%.

Worst is ‘not’ in the rear-view mirror yet

More alarmingly, Coinbase expects a further hit to volumes and the number of monthly transacting users in the current financial quarter, as crypto market conditions continue to deteriorate.

MTUs, it added, were already down to 8.0 million in July. The letter to shareholder reads:

We’re working hard to operate within the $500 million adjusted EBITDA loss guardrail that we communicated for 2022. We’re operating through stressed market conditions, but based on expense management initiatives taken in Q2, we’re cautiously optimistic about our ability to operate within this guardrail.

The management, however, remains bullish as ever for the long-term.