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Coinbase Global Inc.’s new arrangement with Circle could deliver financial benefits, analysts say.
The cryptocurrency exchange announced Monday that it would invest in Circle, the the issuer of the USDC stablecoin, while winding down the jointly managed Centre Consortium that used to oversee the stablecoin. Additionally, the parties will start equally sharing in interest income generated from the distribution and usage of USDC, while continuing to share revenue based on the amount of USDC
USDCUSD,
held on each of their platforms.
The new agreement could drive low-single-digit upside to Coinbase’s
COIN,
interest revenue and provide a high-single-digit boost to earnings before interest, taxes, depreciation and amortization, according to Barclays analysts.
Interest income “is nearly pure profit,” the analysts said, though they kept an underweight rating on the stock.
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While Coinbase noted in a Monday tweet that the company doesn’t expect the update to impact its prior outlook, the Barclays team highlighted that Coinbase was looking for at least $300 million in subscription and services revenue in the third quarter, so there could be room for upside.
Oppenheimer analyst Owen Lau added that the new arrangement could better incentivize the two entities to grow the USDC ecosystem together.
“We believe the new revenue-share agreement increases the predictability of Coinbase’s interest income going forward,” Lau said in his note to clients. “It also removes the downside risk of Coinbase and Circle focusing too much on their revenue sharing [percentage], and adds upside opportunities for both companies working together to grow the ecosystem. By taking an equity stake, the alignment will grow stronger.”
He rates the stock at perform.
Mizuho’s Dan Dolev was more pessimistic on the arrangement, saying that it skewed negative.
“Most importantly, the Circle equity stake deepens COIN’s exposure to a dwindling asset class (USDC market cap is 50% below peak), casting doubt about the standalone business model of stablecoins,” he wrote, while maintaining his underperform stance.
Coinbase shares closed down 0.5% in Tuesday’s session.
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