Coinbase Q3: The Cybersecurity Scare May Be Hiding An Opportunity (Rating Upgrade)

Summary Coinbase Global, Inc. is upgraded to a cautious Buy, reflecting improved diversification and recurring revenue, despite ongoing crypto sector volatility and cybersecurity concerns. COIN’s Q3 results were mixed: revenue was flat QoQ, but profitability improved with $333M adj.

EBITDA and disciplined expense control. Subscription & Services revenue now forms 49% of total revenue, providing a stabilizing floor during weak trading sentiment. Valuation is not yet a bargain; COIN remains highly cyclical and best suited as tactical crypto exposure rather than a long-term hold.

Coinbase Global, Inc. (COIN) reported its earnings yesterday. Yesterday, Binance was hacked.

This hack, allegedly conducted by a North Korean cybercrime group, resulted in $6. 3 billion being stolen from Binance. In this context, does it really matter if Coinbase missed or beat estimates?

In my view, it does (a little), but it clearly overshadowed the quarter. Nobody will run some calculations to find Coinbase’s fair value if they think the industry has a high risk of disruption related to cybersecurity. Usually, in those panicking situations, we have an opportunity to see the stock price go way lower than the intrinsic value.

As you can see below, we’re not in the best period for cryptocurrency. Bitcoin (IBIT, BTC-USD) declined 8% in a month. However, in today’s session alone, COIN fell 10%.

While Bitcoin fell 8% over the past month, COIN stock fell 24. 5%. I still don’t think Coinbase stock is a bargain, but it’s definitely worth investigating.

As we can see below, there is a high correlation between Coinbase and Bitcoin, but the gap is getting larger in the last few days. Is The Cybersecurity Risk Real? The information we have about the Binance hack (at least for now) is that it was only possible due to a compromised laptop of a Binance employee.

This information alone already suggests that we shouldn’t overestimate the risks of hackers breaking security using AI tools. I don’t want to underestimate the uncertainty as well, but trying to take a glass-half-full perspective, it was a massive hack that seems to be controlled by now. Binance said that users won’t bear any losses and that those losses will be covered in full by its funds.

Again, I’m not saying the risk doesn’t exist; I’m just saying that it happened, and it doesn't seem to be the end of crypto or Binance, which is one of the largest exchanges in the world. In my view, management approached this theme in the right way in the earnings call. Coinbase’s vision is that AI isn’t a threat, but Quantum may eventually be: “(...

) I'm actually not too worried about AI creating a risk there. There's been something like a 40-year track record actually of people attempting new algorithms to try to make this easier to break and they've basically made 0 progress. Now, quantum is a different story.

I think quantum, it requires a new type of computer to be built and actually to do it at scale, not just like a theoretical one with a couple of qubits. And so I think that's more of a matter of when, not if. Like I think eventually, a big enough quantum computer will get made that starts to make this stuff a real issue.

So the quantum one, I think, is the more serious one to look at here. And to get ready for this, I mean, we're doing a handful of things. One is, we have begun the work to upgrade our custody to be post-quantum.

(... ) And I know lots of the different blockchains are all working on this. Some of them have published their road map.

One thing we've been participating as best we can on the Bitcoin side, there's an advisory council for Bitcoin around post-quantum that had a really good meeting that we attended a few months ago (... ). And that one, I think, it's not like -- it's not imminent.

I don't think it's going to happen imminently but I do think we -- just -- it's always good to be proactive and start to get ahead of these things. ” It all boils down to how AI can accelerate both ends. AI may accelerate how hacker tools operate and may even make it easier for social hacks through better and more convincing phishing.

On the other hand, there are also algorithms, tools, and AI features that can prevent fraud; this is true not only for user security but also at a corporate level, with better systems and automatic solutions related to access, sensitive data, and other fraud detection and prevention. Other than that, some level of regulation could also mitigate it through more severe audits and how exchanges operate (maybe it would be a double-edged sword, but still). Coinbase Q3 Earnings: Not Great, Not Bad That said, Coinbase missed revenue estimates but managed to exceed EPS expectations.

This summarizes well the quarter; it was mixed. As you can see below, the revenue was flat on a QoQ basis. We’re far from the Bitcoin peak and also far from a period of euphoria, and this affects Coinbase’s total revenue, both in transaction and in subscriptions & services.

Coinbase Earnings Presentation The curious thing in this quarter was that on a QoQ comparison, crypto spot trading volume declined 10%; yet, Coinbase posted a flat transaction revenue. The explanation was prediction markets that offset this decline; prediction markets and derivatives revenue were around 25% of this transaction revenue. It’s still an ugly chart when we see below, but it also shows that management is really delivering on diversification, even in this highly cyclical revenue segment.

Coinbase Earnings Presentation In addition, we have subscription & services revenue. This segment already represents 49% of the whole revenue, which happens when the trading sentiment is lower. As you can see in the chart below, this revenue was also ~50% of Coinbase’s revenue in late 2023, as transaction revenue was very pressured; the difference is that, now, we’re talking about $570 million in subscriptions & services revenue, so it’s proving that it can work as a “floor.

” Coinbase Earnings Presentation What surprised me was profitability. Coinbase delivered $333 million in adj. EBITDA—it's not much, but it’s higher than Q1 and Q2, even with lower revenue.

This means that Coinbase controlled its expenses. On a QoQ basis, adj. Expenses fell roughly 6%, while revenue remained flat.

Even stock-based compensation ((SBC)), which is an important thing in the case, fell a little on a QoQ basis. But it’s still high; Coinbase’s adj. EBITDA was $333 million, while stock-based compensation was $233 million.

Coinbase already proved that in better cycles it can dilute this expense, but we need to monitor it, as it is diluting shareholder value, mainly in these bear cycles. Coinbase: Valuation Is Better Now, But Is It Enough? Coinbase’s Q3 was not great, but it was good enough.

The company made some progress towards more recurring revenue and diversification. The thesis that eventually Coinbase will be a complete crypto ecosystem is getting stronger, even while the sentiment regarding the crypto industry is low. Since my last article, the stock has fallen 13%.

Yet, the valuation doesn't look like a bargain here. The market is considering that the company will increase its EPS year by year, and at this pace, the P/E would reach 21x by 2029. Seeking Alpha But we need to know what this company is about.

Even after efforts to make revenue more diversified and recurring, Coinbase is still a company that is highly correlated to the sentiment toward the crypto industry. What I’m saying here is that the valuation may look expensive today, but in the next bull cycle it can be much better. In the table below, I assumed $5 billion in subscription & other revenue, and $9 billion in transaction revenue.

Author (Kenio Fontes) One may say it’s too optimistic, but I don’t think so; it’s just a valuation that depends on the next big cycle. These estimates may not be reached in 2030 during a “Crypto Winter,” but they could be reached during a bull cycle in 2029 or 2031 (hypothetical scenarios). What proves this is that in Q4 2024, the company delivered $1.

5 billion in transaction revenue alone ($6 billion annualizing it). In Q3 2025, it posted $717 million in subscription & services revenue ($2. 85 billion annualizing it).

In 2030, Coinbase's ecosystem will be larger, with more partnerships, more features, more revenue streams, and so on. Bottom Line In short, I don’t think Coinbase is a bargain yet. But I think that eventually it will manage to deliver high shareholder value and will trade at a low multiple, like a single-digit P/E or EV-to-EBITDA.

Another caveat is that besides the cyclicality, I also think it’s a riskier thesis when compared to other traditional financial companies, so I think it works more like an asymmetrical and tactical crypto exposure for an eventual big cycle than a “buy and hold forever. ” Therefore, I'm upgrading the stock to a cautious Buy.