It seems to me that you have it completely backwards. Smaller block sizes are better for Coinbase, all else equal, because that means transactions on the block

It seems to me that you have it completely backwards. Smaller block sizes are better for Coinbase, all else equal, because that means transactions on the blockchain are more expensive. Which makes sending payments on third party services more attractive, and long term they can flip bits around in their database while taking a cut, ala PayPal. Except the backing currency is BTC, not USD et al. I think that Coinbase is primarily interested here in shepherding the Bitcoin ecosystem as a whole towards success, because it doesn't want the pool it's swimming in to dry up. Sometimes selfless and selfish motivations align.