Mizuho analyst Dan Dolev downgraded Coinbase Global (NASDAQ:COIN) stock to Underperform from Neutral on Friday, questioning whether the cryptocurrency exchange's interest income, a key revenue driver, is "the next shoe to drop." COIN shares slid 3.3% in premarket trading.
The company's interest income, which accounted for 10%-15% of its Q3 revenue, from stablecoin issuer Circle's USD Coin (USDC-USD) has been increasingly vital for Coinbase (COIN) this year in the wake of bearish crypto sentiment and deteriorating trading volume, Dolev pointed out in a note.
For Q3, Coinbase (COIN) saw its interest income surge to $101.78M from $8.39M a year before, boosting its subscription and services revenue. Circle's payout to Coinbase climbed to $22M in Q2 from just $4M in Q1, the analyst noted.
In the eyes of Dolev, though, "consensus estimates for interest income for COIN suggests that the Street is underestimating the potential risks" regarding any potential change to Coinbase's (COIN) USDC income from Circle, he wrote.
The Street sees Coinbase's (COIN) interest income hitting ~$685M in 2024, according to the note. However, when assuming just 25% chance of re-negotiation in the existing Circle-COIN contract at "25% of the economics that COIN is likely currently earning implies a ~$125mn drag on COIN's share of interest income."
Earlier this week, (Dec. 8) Coinbase expects revenue to fall at least 50% from 2021.