Tokenized stocks likely represent a bigger revenue opportunity for Coinbase than prediction markets, analysts at Compass Point wrote in a Monday report while lowering the price target for COIN.
Although the investment bank foresees the crypto exchange unveiling several products at an event on Wednesday, the analysts highlighted tokenized stocks and prediction markets as two areas that could help the exchange diversify sales away from fees on crypto trades.
It could take years for the revenue to materialize, but Coinbase could take in $210 million from prediction markets and $230 million from tokenized stocks, the analysts wrote. They also reiterated a “Sell” rating, while reducing their price target to $230 from $266 per share.
“We don’t believe new verticals can offset COIN’s earnings sensitive to volatile crypto prices,” the analyst wrote. “We believe investors are already paying a premium valuation for new features that may not provide meaningful earnings anytime soon.”
Coinbase shares fell more than 5% to $252 on Monday, according to Yahoo Finance. Their 1.7% year-to-date climb has lagged Robinhood’s stock, which has soared 215% to $118 over the same period of time, following the company’s embrace of similar products.
The analysts expect Coinbase to offer tokenized equities to U.S. customers from the start. Robinhood’s so-called stock tokens, meanwhile, were rolled out to users in Europe.
As Coinbase enters a competitive market among “eBrokers,” the company’s stock offering will likely have similar economics as payment-for-order-flow, Compass analysts wrote. That means Coinbase wouldn’t charge a commission on trades, but it would instead earn rebates from market makers.
“Unless COIN’s stock trading offers similar benefits as traditional eBrokers, we have a hard time seeing users shift their trading from existing platforms,” the analysts added, noting that their revenue estimate is based on “fairly optimistic penetration rates.”
Coinbase would derive a majority of revenue from prediction markets, or $200 million, by charging 1¢ per contract traded, if its offering adopts a similar strategy to Robinhood and WeBull, the analyst wrote. The move could also come with a $10 million in stablecoin revenue, as an initiative that would boost Coinbase’s balance of on-platform USDC.
The crypto exchange earns 99% of the revenue from assets backing Circle’s $78 billion product when the stablecoin is held on Coinbase’s platform. Screenshots shared on X in recent weeks suggest Coinbase’s product may be powered by prediction market Kalshi.
Last month, Kalshi tapped Coinbase Custody for safeguarding users’ USDC. And last week, Coinbase, Robinhood and Kalshi were among members that formed the Coalition for Prediction Markets, an organization dedicated to establishing clear rules for the sector.