Investment Research Firm Says Coinbase Revenue to Decline Despite Beating Estimates

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Despite Coinbase beating analysts’ estimates on transaction revenue on Tuesday, a U.S. investment research firm still thinks the biggest U.S. crypto exchange is overvalued.

The exchange, the largest in the U.S. by trading volume, posted $1.9 billion in transaction revenue for Q2, exceeding expectations of around $1.57 billion, CoinDesk reported.

Though according to Nashville-based firm New Constructs’ CEO David Trainer, the results, while impressive, are not good enough to justify the company’s “very expensive” valuation of around $56 billion.

Related: PNC Bank Is Planning a Crypto Offering With Coinbase

“Coinbase will likely not be able to sustain blowout earnings going forward thanks to rising competition in the cryptocurrency trading space,” said Trainer. As such, New Constructs expects the exchange’s margins and future revenue growth rates to fall as competition from the likes of Binance, Gemini, and Kraken “eat into its business.”

It isn’t the first time the research firm has criticized Coinbase’s value. The company In May the predicted that exchange’s share price would fall to $100. Coinbase’s share price did fall to an all-time low of $208 on May 19, but has managed to claw back losses and is currently trading around $269 per share.

Still, amid the backdrop of regulatory developments and U.S. politicians wanting their slice of the “crypto trading pie” in the form of taxes, Trainer argues Coinbase investors should be wary.

“At current levels, Coinbase’s stock remains terribly overvalued,” said Trainer, who points to a need for Coinbase to attain higher revenue than established rivals like Nasdaq (NDAQ) and Intercontinental Exchange (ICE).

Related: Coinbase Rakes In $1.9B in Transaction Revenue in Q2, Beating Estimates

The CEO also points to Coinbase’s dependency on the spot price of bitcoin for its transaction revenue growth, noting that as bitcoin prices move up or down, so too does the exchange’s share price.

Indeed, as a result of bitcoin’s shaky performance during the second half of the year, the exchange has warned that monthly transacting users and trading volume would be lower in Q3 compared to Q2.

“Hints of lower volumes in Q3 coupled with July’s crypto market volatility has led to a mild retracement to the US$270 level,” Toby Chapple, head of trading at digital asset firm Zerocap, told CoinDesk via Telegram.

Yet despite lower expectations for Q3, the digital asset firm said Coinbase’s revenue is diversifying into other cryptos, which is helping to capture thematic decentralized finance flows.

“Ultimately we expect a buoyant share price into the rest of this month given the supply shifts in Ethereum, and expected sentiment growth from traders and investors,” said Chapple.

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