Adam here. 

Coinbase is back in the black — posting its first profit in two years — and some firms are moving their price targets higher.

The crypto exchange’s fourth-quarter earnings report, which doesn’t reflect January’s launch of spot Bitcoin ETFs from BlackRock, Fidelity, and other fund giants, surprised research analysts with better-than-expected revenue. 

Net income smashed targets at $273 million, more than double consensus figures. 

Investment bank Needham increased its price target for Coinbase to $220 from $160 on Friday. The increase was based on higher returns from staking services and increased trading revenue for 2024.

JPMorgan upgraded its rating for Coinbase to neutral, from underweight following earnings. 

Shares in the crypto exchange rose to a two-year high of $190 on Friday, up 15% since the opening bell. 

Here’s what analysts are talking about today.

• Revenue: Coinbase posted revenue of $954 million for the quarter. Above Needham’s estimates of $948 and about 15% higher than Wall Street analysts consensus of $826 million. 

• Trading fees: The crypto exchange’s retail take rate fell to 1.7% after coming in above 2.5% in prior quarters. 

• Staking and altcoins: The big revenue beat came from unlikely sources, with 42% attributed to staking programs and trading in smaller cryptocurrencies.

While Coinbase may have beaten estimates, it disappointed on key areas, analysts at investment bank Mizuho said in a note on Thursday. 

Since Coinbase doesn’t share a clear breakdown of its trading fees, analysts at Mizuho use the so-called retail take rate. This divides transaction revenue by trading volume to get a better idea of how much money the exchange made on trades. 

That so-called retail take rate — essentially the average fee it charges clients to trade — fell to 1.7% in the fourth quarter.

Needham attributed the lower retail take rate to higher volatility during the quarter, which resulted in a greater number of “advanced trading” users. 

Basically more retail users utilised the exchange’s technical trading platform to trade with lower fees, versus simple retail users.

The revenue beat was driven by altcoins and staking, which represents “lower-quality” revenue, according to Mizuho. 

Altcoins and staking made up 42% of revenue, which was a record high and a marked increase from 31% in the third quarter of 2023, Mizuho said.

Fee compression?

While analysts have expressed concern over Coinbase’s high trading fees the exchange has continuously batted away suggestions it could be moved to lower fees. 

The introduction of spot Bitcoin exchange-traded funds in the US, which charge fees of around 0.2%, has done little to dissuade the firm’s hierarchy. 

Retail users shifting away from Bitcoin and Ethereum into what Coinbase calls “other crypto assets” could support the crypto exchange’s case for keeping its fee’s elevated. 

While US investors now have a cheap alternative to invest in Bitcoin, other assets like Solana, Chainlink, and Avalanche’s AVAX are highly unlikely to be available through an ETF wrapper any time soon.

Coinbase will continue to capture customers looking to invest in these smaller cryptocurrencies. 

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