Is Coinbase a buy?
It’s time to explore a cryptocurrency icon. Here is the break down of $COIN, otherwise known as Coinbase.
Current Price: $229.94
52/Wk High: $208.00
52/Wk Low: $429.54
Market Cap: $48.0 Billion
3 Month Performance: -29.96%
Read below for the break down!
Coinbase ($COIN) is a leading fintech company specifically focused on the cryptocurrency industry. The company provides digital infrastructure and technology that further builds the cryptocurrency economy.
Furthermore, Coinbase provides customers with the ability to invest, spend, earn, and store cryptocurrency assets within the crypto economy.
Breaking down the company’s user base, Coinbase hosts over 56 million users and 8,000 institutions. Not only that, but the company boasts 134,000 ecosystem partners throughout over 100 countries.
Coinbase is led by co-founder and CEO Brian Armstrong. Armstrong joined the board of directors at inception in 2012. Before Coinbase, Armstrong worked as a software developer at the now popular travel company Airbnb.
The company’s management team is also made up of leaders with prior experience from the likes of LinkIn, Warner Bros, Google, Flipkart, Citadel, and FaceBook.
On the funding front Coinbase announced the pricing of a sizable $1.25 billion offering of Convertible Senior Notes. Leadership noted that the funding will be used to bolster the “already strong” balance sheet and to “fuel innovation” in the future.
Sifting through the cryptocurrency market, investors are starting to fear what the future holds after a major drop off in cryptocurrency trading volume.
According to CNBC (@CNBC) and other sources trading volumes on cryptocurrency exchanges such as Coinbase, Binance, and Kraken fell over 40% in the month of June alone based on data provided by CryptoCompare.
Given Coinbase’s business model, in which a large part of revenues are based on trading fees, the volume decline has been seen as a major negative in the short term for the company.
Digging into the numbers, Coinbase delivered a Q1 2021 miss with an EPS of $3.05, lower than the analyst’s EPS consensus estimate of $3.09.
As for revenues, Coinbase delivered $1.801 billion in total revenues for Q1, representing a strong improvement over the Q1 2020 total revenues level of $190.630 million. On a year-over-year basis, total revenue increased by over nine times.
Breaking down revenues, net revenue accounted for $1.596 billion of the total quarterly revenue. Exploring net revenue, the revenue segment is made up of total transaction revenue and total subscription and services revenue.
Transaction revenue totaled $1.5406 billion in Q1, with $1.4552 billion being net retail transaction revenue and $85.6 million being institutional transaction revenue. On a year-over-year basis, both increased by over eight times.
Leadership noted that higher transaction revenue was driven by the addition of new tradable currencies to the Coinbase platform, and that new crypto additions are a common revenue driver.
Subscription and services revenue totaled $56.4 million in Q1, representing a significant improvement from the same time 2020 level of $7.1 million.
Do note that the segment's revenue is generated from custodial fees, staking, interest income, earn campaigns, and other subscription and services revenue.
Shifting into income, operating income totaled $987.713 million in the first quarter, representing a sizable jump from the same time 2020 level of $38.775 million.
As for net income, Q1 net income totaled $771.463 million, representing a boost from the Q1 2020 net income level of $31.973 million.
On the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) front, adjusted EBITDA landed at $1.12 billion, representing 70% of margin when compared to net revenues.
Exploring operations, net cash provided by operating activities totaled $3.411 billion in Q1, representing a strong jump over the Q1 2020 level of $470.299 million.
Changing directions, operating expenses totaled $813.4 million throughout Q1, representing a significant acceleration in expenses when compared to the same time 2020 operating expenses level of $151.8 million.
While expenses increased, operating expenses only represented 51% of net revenue. Looking back to Q1 2020, operating expenses represented 85% of net revenue.
Rounding out the quarter, Coinbase reported 6.1 million monthly transacting users (MTU), representing an increase of roughly 4.8 million MTUs on a year-over-year basis.
Assets on the platform also significantly increased, with assets totaling $223 billion in Q1 2021 versus the dismal $17 billion a year ago. Finally, trading volume accelerated significantly year-over-year, improving from $30 billion to $335 billion.
Management was upbeat.
“Our strong Q1 2021 results reflect the strength of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all time high prices, high levels of volatility, and increased interest across the entire crypto economy,” the company said.
Shifting into the balance sheet the numbers are solid.
Total Debt: None
Total Liabilities: $7.345 Billion
Total Assets: $10.201 Billion
Cash & Short Term Inv: $1.983 Billion
On a valuation basis, Coinbase does trade at a premium.
Price to Earnings: 104.09x
Forward Price to Earnings: 47.15x
Price to Sales: 17.58x
Price to Book: 22.24x
Price to Cash Flow: 16.18x
Given the numbers the analysts are bullish with a mean price target of $366.50/share, representing a 59.39% upside.
The high price target is $650.00/share, representing a 182.68% gain, while the low price target is $225.00/share, representing a minimal -2.15% downside.
The big money is less involved with just 16.47% of Coinbase being owned by institutions. Top holders include Ark Investment Management, Andreessen Horowitz, and The Vanguard Group.
On a technical basis Coinbase could be presenting opportunity. According to the six-month charts the MACD is moving with minimal upside momentum within a tight range around -1.005.
The six-month charts are also indicating an RSI of 44.76 and CCI of -40.286, both of which are on the lower end.
Looking to the future investors fear a continued cool down of cryptocurrency popularity and trading, which would therefore hurt Coinbase directly.
On the flip side, the bulls believe that cryptocurrency is here to stay and that Coinbase will continue to innovate with the crypto economy.
In short, Coinbase ($COIN) is a solid crypto economy pick with expanding revenues, solid balance sheet, a reliable management team, and growing user base.
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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.