Coinbase Global, Inc. (COIN, BUY) - 3Q26: Solid Execution Overshadowed by External Headwinds; Maintain BUY; Lower Price Target to $230 from $250

Coinbase Global, Inc. (COIN, BUY) - 3Q26: Solid Execution Overshadowed by External Headwinds; Maintain BUY; Lower Price Target to $230 from $250

Coinbase delivered a resilient 3Q26 despite continued weakness in crypto trading activity, with its Everything Exchange strategy gaining traction and cost discipline supporting a meaningful profitability improvement. Total revenue was $1.22bn, broadly flat q/q despite a 10% sequential decline in industry crypto trading volume. Adjusted EBITDA rose 60% q/q to $333mn, supported by a 6% decline in Adjusted Expenses to $975mn. Management also lowered its full-year 2026 Adjusted Expenses guidance to $4.15–4.30bn, demonstrating continued cost discipline. The Everything Exchange strategy is showing tangible progress. Coinbase's crypto trading volume market share increased to 10.7% from 5.6% a year ago, marking its fourth consecutive quarter of gains across both spot and derivatives. Prediction Markets surpassed $200mn in annualized revenue, with daily traders increasing more than 60% q/q. The integration of Deribit and Coinbase International Exchange further strengthens its global derivatives offering, while Subscription & Services revenue grew 3% q/q to $570mn, supported by record USDC balances on Coinbase products. These developments reinforce our view that Coinbase enters the next crypto cycle with a stronger competitive position and broader monetization opportunities than in previous cycles. We believe the sharp share-price decline following earnings reflects broader market and industry headwinds more than company-specific fundamental deterioration. First, concerns over the returns on massive AI capital expenditures have triggered a broad technology-sector selloff, weighing on investor risk appetite. Second, the reported security breach at Binance, involving an estimated $6.3bn in affected crypto assets, has driven renewed weakness in BTC and other cryptocurrencies. While Coinbase's core trading activity remains subdued, its quarterly results showed improving profitability, continued market-share gains, and progress in revenue diversification. We therefore do not believe the magnitude of the selloff is justified by its operating results alone. The Binance incident creates near-term uncertainty but could also reinforce Coinbase's competitive advantages. A security breach of this magnitude may undermine investor confidence in centralized exchanges, pressure crypto prices, and delay a broader recovery in trading activity. However, Coinbase's established reputation for security, regulated infrastructure, and institutional custody could encourage some users to shift assets toward more trusted platforms, potentially supporting further market-share gains, particularly internationally. We view this as a potential longer-term opportunity rather than an immediate offset to the industry's near-term headwinds. Our constructive BTC cycle outlook remains intact, although the recovery path may be somewhat delayed. We continue to believe BTC is positioned for a new bull-market cycle, which should eventually support higher crypto prices, trading volumes, volatility, and retail participation. However, the latest industry developments could prolong the current period of subdued activity. We now forecast 2027 revenue of $7.01bn and Adjusted EBITDA of $2.51bn, reflecting a more gradual recovery. Accordingly, we lower our price target to $230 from $250, based on approximately 25.3x our revised 2027E Adjusted EBITDA. We maintain BUY, as Coinbase remains one of our preferred high-beta exposures to the next crypto cycle, supported by an increasingly diversified business and strengthening competitive position.