Summary Coinbase's 17% share price drop on Friday is an overreaction to broader market weakness, not company fundamentals, and presents a long-term buying opportunity. Coinbase's Q2'25 earnings showed strong platform profitability, despite a revenue miss, with the company beating EPS estimates and maintaining robust net earnings. Regulatory clarity from the GENIUS Act strengthens the investment case for Coinbase by legitimizing stablecoins and the broader crypto ecosystem. Coinbase remains a high-risk, high-reward play best suited for investors comfortable with volatility and seeking exposure to the fast-growing crypto sector. Coinbase Global, Inc.'s ( COIN ) shares tumbled almost 17% on Friday, after the crypto company’s second quarter earnings report card disappointed and fell short of expectations regarding the top line, although the top-line miss was fairly small. In my opinion, investors were overreacting to the Q2'25 earnings scorecard since Coinbase remained widely profitable in the second quarter. Most likely, Coinbase's shares crashed after poor jobs numbers were released and investors went into a risk-off setting. In my opinion, the price drop represents an engagement opportunity for investors with a long-term investment horizon and who want to gain investment exposure to the broader, rapidly developing cryptocurrency universe. Data by YCharts Previous Rating I rated shares of Coinbase a strong buy in my last work on the cryptocurrency trading platform in November 2024 -- A Directional Bitcoin Bet -- due to a considerable price recovery in the world’s largest digital currency, Bitcoin USD ( BTC-USD ). In my opinion, recent legislation with regard to the GENIUS Act, which creates regulatory certainty around stablecoin issuers, has significantly improved the legitimacy of cryptocurrency-based business models. Since Coinbase remained highly profitable in the second quarter, I see the drop as a buying opportunity. Coinbase Q2'25 Earnings Vs. Estimate Performance Coinbase reported better-than-expected earnings for its second quarter, but missed on the top line: the cryptocurrency trading platform reported $5.14 per share in adjusted earnings, beating the consensus estimate by a massive $3.65 per share. Revenues were reported at $1.5B and missed the average prediction by $97M. Seeking Alpha Coinbase's 17% price crash on Friday, in my opinion, was not so much driven by the company’s earnings scorecard for the second fiscal quarter but rather by emerging selling pressure in the market related to a poor jobs report that stated that the U.S. economy only created 73,000 jobs in July , missing the estimate of 100,000. Investors rushed to sell assets which led to falling prices in both the stock market and the crypto market. The unemployment rate also ticked up to 4.2% in the month of July, causing selling pressure in the stock market more generally. Major stock market indices, like the Dow Jones, sold off following the jobs report, leading to broad-based pressure on risk assets. While Coinbase's Q2'25 earnings scorecard was not bad at all, the weak market environment likely led to a much more serious sell-off than would be justified based on the platform's financial performance, in my opinion. CNBC From a purely financial standpoint, however, Coinbase had a fairly successful second quarter. In the second quarter, the cryptocurrency trading platform achieved revenues of $1.5B, showing 3% year-over-year growth. On a sequential basis, however, the firm's revenues dropped 26% as both institutional and retail clients traded less throughout the quarter. Transaction volumes can be highly volatile from quarter to quarter and have not, in the long term, negatively affected Coinbase's platform profitability. Investors with a long-term investment horizon may want to look past the volatility of short-term driving trading activity and focus on the fact that Coinbase develops non-trading related revenue streams that are set to reduce the company's overall revenue volatility. Transaction revenues are key to the company's financial success as they continue to represent the majority of Coinbase's top line. In Q2'25, Coinbase’s transaction revenues fell to $764.3M, showing a decline of 2% year-over-year, but a much more significant 39% drop-off quarter-over-quarter. Transaction revenues represented 51% of all revenues in Q2'25, so the decline in transaction revenue was quite significant, and the driving factor behind Coinbase underperforming top-line estimates. Even much higher stablecoin revenue, which came in at $332.5M (+38% Y/Y) could not compensate for the decline in transaction activity. Coinbase Coinbase has a reputation for having a volatile revenue trajectory that depends on the trading volume of both retail and institutional investors on the platform: the firm's Q2'25 trading volume decreased 40% Q/Q to $237B, as institutional investors pulled back from investing at a time when Bitcoin marched on to reach new all-time highs. Further, Coinbase reduced prices for stablecoin trading pairs in the second quarter which affected the company's total transaction volume and revenue generation from this specific revenue stream. In the long term, I expect that investors will see top-line growth, especially in the stablecoin revenue portion of Coinbase's portfolio. While the cryptocurrency marketplace suffered a considerable decline in transaction volumes from both retail and institutional investors in the second quarter, the marketplace remained extremely profitable from a net earnings perspective. In Q2'25, Coinbase generated $1.4B in earnings from its mainly trading and complementary services, showing a near 39-fold increase over the year-earlier period. Coinbase's massive platform profitability is still the main reason why I believe that shares are a strong buy. Coinbase Besides strong platform profitability, I believe that new legislation in the context of the recently passed GENIUS Act is a positive catalyst for growing cryptocurrency adoption. The GENIUS Act is a major piece of pro-crypto regulation that provides regulatory clarity for stablecoin issuers and therefore also further legitimizes the cryptocurrency ecosystem. Stablecoins are an important pillar of the cryptocurrency market because they allow investors to move in and out of more volatile cryptocurrencies easily and at a low cost, and their values are pegged to the U.S. Dollar. As a result, a more favorable cryptocurrency investment environment is a huge boost to companies like Coinbase which are playing an active role in the development of the cryptocurrency ecosystem and are seeing growth especially in the stablecoin portion of their businesses. While the stablecoin legislation didn't yet affect the firm's Q2'25 results (the legislation was passed in July), it is a favorable element for the Coinbase investment case long-term. Coinbase participates in the growth of the stablecoin segment as it has a revenue-sharing agreement with Circle Internet Group, Inc. ( CRCL ), the issuer of stablecoin USDC. This agreement allows the company to keep 100% of revenues associated with USDC held on the Coinbase platform as well as 50% of income associated with off-platform USDC holdings. Stablecoin issues like Circle can partner with cryptocurrency exchanges in order to boost the adoption of specific stablecoins, in this case, USDC. If USDC stablecoin adoption rises, cryptocurrency platforms can generate higher interest income associated with the reserve assets underlying stablecoins (often U.S. Treasuries). The relationship between stablecoin issuer (Circle) and cryptoexchange (Coinbase) is illustrated in the following chart. Coinbase Going forward, investors should expect Coinbase to continue to diversify its revenue mix by developing its non-trading related revenue streams, such as stablecoin revenue, Blockchain rewards or interest-related income. Coinbase's Valuation Coinbase has, as a result of unpredictable trading volumes on its trading platform, a very volatile EPS record. While predicting earnings on a Q/Q basis can be tricky, I expect the cryptocurrency trading platform to benefit from growing crypto adoption long-term and be able to grow its earnings as well. Coinbase generated $5.39 per share in diluted earnings in the first six months of the year. Assuming that America's pro-crypto regulatory push continues and Bitcoin stages a new breakout attempt, I would not be surprised to see a considerable rebound in transaction activity on the Coinbase platform. I believe that Coinbase could generate $11-12 per share in earnings in FY 2025 which rests on the assumption that cryptocurrency markets will remain volatile throughout the second half of the year. For FY 2026, I would expect a similar level of earnings, but I could see a potential retest of Coinbase's previous EPS record of $14.50/share in FY 2021 if investor sentiment surges and Bitcoin achieves a series of new all-time highs. Shares of Coinbase are currently trading at a forward price-to-earnings ratio of 38.4X which is about 24% above the 1-year average price-to-earnings ratio. Firms with cryptocurrency exposure, like MicroStrategy Incorporated ( MSTR ) and Circle Internet Group, are trading at P/E ratios ranging from 12.2X to 93.3X. While both companies have different business orientations than Coinbase -- Strategy is mainly a Bitcoin holder conducting debt-financed Bitcoin purchases while Circle is a stablecoin issuer -- all companies participate in the broader growth of the crypto universe and their financial fortunes are tied to the performance of the cryptocurrency market in general. Further, all companies are set to benefit financially from growing cryptocurrency/stablecoin adoption and an improving regulatory landscape that will make investments in digital assets easier going forward. FY 2026 EPS estimates for Coinbase, due to Bitcoin's surge earlier this year, have consistently reset higher in 2025 and I would not be surprised to see Coinbase post record, trading-driven results if cryptocurrencies surge again. An $11-12 per share EPS estimate for FY 2025 (and FY 2026), even when using a lower 31.0X P/E ratio (Coinbase's average in the last twelve months), calculates to a fair value between $341 to $372 per share. Using the current forward P/E ratio of 38.4X, this estimated EPS range would yield a fair value of $422-461 per share. Data by YCharts Risks With Coinbase The risk of negative regulatory actions against crypto companies has decreased significantly under the Trump administration, although cryptocurrencies are still a high-risk asset class and are only suitable for investors who can withstand significant price volatility. High volatility and potential hacks of cryptocurrency platforms or wallets are also key risks that investors should have in mind when investing in the cryptocurrency space. What would change my mind about Coinbase, and potentially my stock rating, is if the platform were to see an exodus of client assets or significantly suppressed earnings power during a major correction in the cryptocurrency market. Final Thoughts The market is wrong for punishing Coinbase so harshly after a relatively small top-line miss. The 17% Coinbase share price drop on Friday, in my opinion, was completely exaggerated and likely had much more to do with poor jobs numbers and a desire for investors to sell assets that have performed very well lately. In my opinion, the drop is a buying opportunity for investors with a high risk tolerance that have a desire to gain exposure to the fast-developing cryptocurrency market. The main reason to own Coinbase is the company's enormous platform profitability. Investors with a long-term investment horizon and an ability to stomach high levels of volatility may want to consider buying the drop aggressively.