Should You Seize the Opportunity on Coinbase's Recent Dip?

After a meteoric two-year run that saw Coinbase Global (COIN 4.13%) jump by more than 350%, the company faced its worst trading day since 2022 on Oct. 31, with the stock sliding over 10% after releasing its third-quarter earnings.

But while there are reasons for investors to be cautious, there are also signs that the recent drop might be an overreaction, presenting a potential buying opportunity for those with a long-term mindset. Here’s why I’m treating this sell-off as a reason to buy one of the most impressive companies on the market today.

Solid growth, but numbers fell short

So, what went wrong in Q3? The first issue was a straightforward earnings miss. Coinbase reported net income of $75.5 million, or $0.28 per share — both healthy numbers, but they fell short of analysts’ projections of $0.45.

Revenue also grew year over year, hitting $1.21 billion, up from $674 million last year, but it missed the anticipated $1.26 billion. Transaction revenue, a major contributor to Coinbase’s earnings, declined by 27% from Q2, reaching $483 million, while subscription and services revenue also saw a dip, decreasing by 7% to $556 million. This combination of missed targets cast a shadow over Coinbase’s recent profitability gains, and the market reaction was swift.

In addition to softer trading activity, stablecoin revenue, which has been a strong point for Coinbase amid the high-interest-rate environment of the last two years, is expected to face challenges ahead.

Through its revenue-sharing partnership with Circle, the issuer of USD Coin, Coinbase generated around $246.9 million in revenue this past quarter, reflecting a 2.6% increase from Q2 and a 43% year-over-year jump. However, with interest rates expected to trend lower, Coinbase anticipates a potential decline in this income stream.

Add it all up, and while there was some success in the recent quarter, Coinbase’s executives explained on the quarterly call that there is reason for caution in the short term. As chief financial officer Alesia Haas summed it up, there are some “headwinds” on the horizon that could challenge Coinbase’s growth in Q4.

Time to zoom out

To put it simply, the reaction from markets was the result of concern for Coinbase’s short-term growth. For long-term investors, there are still plenty of reasons for optimism amid these challenges.

First and foremost, crypto is still firmly in a bull market. However, the main problem limiting Coinbase’s growth is that the majority of crypto’s recent gains occurred in the final weeks of the quarter, with most price action limited to Bitcoin.

For a platform as diversified as Coinbase, which relies on multiple crypto assets, it’s no surprise that a Bitcoin-specific rally had only a modest impact on its transaction revenue. Yet, if a broader crypto rally develops, which history says it should, Coinbase will see significant growth.

Then there’s Coinbase’s announcement that it would be conducting a $1 billion stock buyback. This announcement signals confidence in the company’s long-term outlook and success. Stock buybacks are often viewed as bullish because they reduce the number of outstanding shares, potentially increasing earnings per share (EPS) and boosting shareholder value. For investors, this move could indicate that Coinbase’s leadership sees current challenges as only short-term issues.

Last, but not least, it needs to be pointed out that Coinbase’s fundamentals are stronger now than they were in prior years. Coinbase has now posted five consecutive profitable quarters after experiencing nearly two years of losses.

While expectations for the company have shifted, particularly as investors have grown accustomed to its recent profitability, this track record points to a solid underlying business model. Coinbase remains one of the most established and recognized names in the cryptocurrency space and is positioned to benefit as adoption grows. For those long-term investors out there, this recent dip could be a rare opportunity to buy a pioneering innovator at a discounted price.