No-moat Coinbase (COIN) reported strong second-quarter results with earnings of $6.42 per share and net revenue of $2.23 billion coming in above our expectations. Earnings benefited from a tax benefit of $737 million as a result of tax deductions associated with the company’s direct listing. Strong cryptocurrency prices during the quarter drove total trading volume to a new all-time high of $462 billion, 38% more than last quarter. However, Coinbase relies on retail traders for most of its revenue, a consequence of the higher fees they pay, and retail trading volume growth of 21% meant that transaction revenue grew only 25% from last quarter to $1.93 billion. While impressive, these results do not materially alter our long-term projections for Coinbase, as they depend more on the adoption of cryptocurrency as a new asset class than the amount of trading volume that occurs in any individual quarter. That said, the strength of Coinbase's performance during the quarter, as well as continued cryptocurrency volatility since the end of June, has led us to increase our short-term expectations and increase our fair value estimate from $194 per share to $201.
Recently, Coinbase has had a great deal of success in accelerating the rate at which it lists new cryptocurrencies. In the first half of 2021, Coinbase added 29 new cryptocurrencies to be traded on its platform and now lists 83 different offerings. Coinbase will likely continue to struggle to match some of its less regulated peers in terms of number of coins listed, but we see the company’s progress on this front as a tailwind for growth. Having more assets listed on the exchange creates a healthier trading ecosystem for active traders and fulfills one of the most commonly made requests from Coinbase's userbase. During the quarter, half of the firm's total trading volume came from cryptocurrencies other than Ethereum or Bitcoin, and we think Coinbase will benefit from creating a more diversified marketplace on the exchange.
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