Citi: Coinbase retail trading weakens as new businesses struggle to fill the gap for now

Where was third-quarter trading weak?

Coinbase’s third-quarter net revenue was 1.16 billion dollars, 9% below Citi’s estimate but 1% above market consensus; transaction revenue was 590 million dollars, 16% below Citi’s estimate and down 44% year over year.
The main shortfall came from retail: trading volume from retail and advanced users was 23 billion dollars, 23% below Citi’s estimate and down 60% year over year; institutional trading volume was 111 billion dollars, broadly in line with Citi’s estimate.
Retail trading accounted for 17% of total volume, below Citi’s estimate of 21%. A change in transaction mix brought the blended transaction fee rate to 0.44%, below the bank’s estimate of 0.49%, even though the retail transaction fee rate itself was above expectations.
Management attributed the weakness in monthly transacting users to crypto asset prices rising only at the end of the quarter; Citi noted that user numbers still declined amid rising coin prices and ETF inflows.

The annualized revenue run rate for prediction markets has exceeded 200 million dollars, and user participation is expanding from sports into more areas. After obtaining a derivatives clearing organization license, Coinbase can launch its own contracts, giving it greater control over product innovation.
Third-quarter stablecoin revenue was 307 million dollars, 2% above Citi’s estimate but down 13% year over year; USDC balances reached a new high. Revenue contributions from derivatives and prediction markets also became more significant, while institutional financing demand drove further growth in loan balances.
These businesses have diversified Coinbase’s revenue sources, but Citi believes their contribution is still insufficient at this stage to offset weaker retail trading.

Citi cut its retail trading volume forecasts for 2026 and 2027 by 15% and 21%, respectively, and lowered its transaction revenue forecasts for both years by 10%. Higher assumed retail fee rates are not enough to offset lower volume and a declining retail share.
Adjustments to non-transaction businesses were milder: based on stronger assumptions for stablecoin, interest and recurring revenue, Citi raised its 2027 subscription and services revenue forecast by 4%.
Citi also cut its adjusted expense forecasts for 2026 and 2027 by 4% each, but savings only partially cushion the revenue cuts: adjusted EBITDA forecasts for the two years fell to 1.2 billion dollars and 2.8 billion dollars, respectively, down 11% and 5% from prior forecasts.
Third-quarter adjusted EBITDA was 333 million dollars, 9% below Citi’s estimate but 16% above market consensus. The company expects increased prediction-market marketing spending and a full quarter of impact from Hyperliquid USDC incentives to push expenses higher in the fourth quarter.

Citi maintained its Buy/High Risk rating and 230-dollar price target, believing prediction markets, derivatives, lending and stablecoins are becoming more important to valuation. Its target is based on its 2027 adjusted EBITDA forecast and a target multiple range of 20 to 25 times.
This valuation framework corresponds to the mid-cycle scenario envisaged by Citi: recurring revenue provides support, while transaction revenue recovers from its low but has not yet returned to its peak. At the same time, transaction revenue remains exposed to fluctuations in crypto asset prices and trading volumes, while competition and market maturity could also depress transaction fee rates.