Morgan Stanley: Coinbase trading recovery expectations weaken, price target cut to $120

What did third-quarter results and October trading reveal?

Coinbase reported third-quarter 2026 revenue of $1.22 billion, 6% below Morgan Stanley’s forecast; adjusted EBITDA was $333 million, approximately 5% below its forecast. Lower operating expenses partly offset the revenue shortfall.
Retail spot trading volume was $23.4 billion, 19% below Morgan Stanley’s forecast; monthly transacting users numbered 7.4 million, approximately 10% below its forecast.
Trading revenue through 25 October was approximately $165 million. At the same pace, fourth-quarter revenue would be approximately $607 million, around 50% below the bank’s previous forecast and 11% below market consensus. The company guided for fourth-quarter subscription and services revenue of $550 million to $630 million, with the midpoint 11% below the bank’s previous forecast.

Morgan Stanley cut its 2027 spot trading volume forecast from $1.22 trillion to $718 billion, mainly reflecting weaker retail and institutional volumes. The bank accordingly cut its 2027 revenue forecast by 28% to $6.4 billion and its adjusted EBITDA forecast by 47% to $1.9 billion.
The bank still expects 2027 revenue and adjusted EBITDA to grow 24% and 67%, respectively, from a low base in 2026; however, it forecasts 2028 adjusted EBITDA of $2.4 billion, 14% below the actual 2025 level, indicating that the earnings base after recovery is also lower than previously envisaged.
The 2027 revenue forecast is roughly in line with market consensus, but the bank’s adjusted EBITDA forecast is 17% lower, implying a margin of 29% versus consensus of 35%. The company continues to invest in new products, infrastructure and customer acquisition, limiting the earnings upside when trading activity recovers.

Diversification has made progress: third-quarter prediction-market revenue exceeded $200 million on an annualized run-rate basis, while prediction markets and derivatives together contributed approximately 25% of trading revenue; average USDC balances within Coinbase products rose from $19.6 billion in the second quarter to $22 billion.
However, Morgan Stanley expects retail spot trading still to account for approximately 40% of Coinbase’s 2027 revenue. New products such as derivatives and prediction markets have different monetization models and are not yet large enough to offset weakness in retail trading, which generates more revenue per unit of activity.
The bank’s 2027 stablecoin revenue forecast remains broadly unchanged at $1.7 billion, supported by growth in circulation and platform balances; however, falling interest rates, customer rewards and greater revenue sharing with distribution partners could offset some of that growth.

Morgan Stanley downgraded Coinbase from Equal-weight to Underweight and cut its price target from $258 to $120. The new target is based on estimated 2028 adjusted EBITDA of approximately $2.4 billion, with the target enterprise value multiple reduced from 20 times to 12 times.
The bank believes trading volumes need a more sustained recovery and new products need to contribute more earnings for there to be greater upside to the valuation. Although the Binance security incident did not directly affect Coinbase, it could weaken industry confidence and trading activity; customers shifting to platforms that place greater emphasis on security could also bring Coinbase market share, but near-term gains may not be enough to offset weak industry activity.