COIN: Volatility in Crypto Muddies 2022 Outlook
Stock Analysis & Ideas

COIN: Volatility in Crypto Muddies 2022 Outlook

The conflict between Russia and Ukraine has not only caused the stock markets to fall sharply but has also resulted in a bloodbath across the crypto market. Bitcoin (BTC) plunged by more than 15% in the last seven days amid the increasing tension between Russia and Ukraine.

This has also led to a question in the minds of crypto investors about whether the growing friction between Russia and Ukraine could lead to a “crypto winter” and how it is likely to affect cryptocurrency exchanges like Coinbase Global (COIN).

The company’s management addressed this query at its Q4 and FY21 earnings call on Thursday. Brian Armstrong, co-founder, CEO, and chairman of Coinbase, while dismissing the possibility of a “crypto winter,” pointed out that these were early days for the crypto industry.

Armstrong added that the company remained “incredibly bullish” about the potential of the crypto industry over the long term. The reason for his bullishness stems from the fact that the use cases for crypto have expanded beyond people just trading it.

These use cases include the adoption of Decentralized finance (DeFi), non-fungible tokens (NFTs), and building games and social media apps centered around crypto.

COIN is also diversifying its revenues as these use cases have expanded and its revenues include staking revenues, decentralized finance products, and COIN’s non-fungible token (NFT) platform.

Coinbase defines staking revenue as comprising “the majority of Blockchain rewards revenue and is recognized on a gross basis.”

The overall rise in investing in cryptocurrency was also reflected in Coinbase’s Q4 results.

Coinbase’s Q4 Results

As the company pointed out in its letter to shareholders, it ended 2021 with most of its key metrics at the higher end of its outlook.

COIN’s annual average retail monthly transacting users stood at 8.4 million at the end of 2021, at the higher end of its outlook of a range between 8 million and 8.5 million users. What’s more, the company’s monthly transacting users hit an all-time high of 11.4 million, four times its monthly transacting users in 2020.

The company also saw a massive uptick in trading volumes that ballooned 8.5 times the volumes in 2020 to $1,671 billion in 2021.

When it comes to revenues, COIN’s net revenues jumped significantly to $7.4 billion in 2021 versus $1.1 billion in 2020. More importantly, the contribution of subscription and services revenues to the company’s total revenues became more significant, making up 7% of its total net revenues in 2021.

Coinbase earned an average transaction revenue per user of $64 in 2021, exceeding its guidance in the high $50s. What’s more, the company increased its institutional customer base by over 50% in 2021.

COIN’s Outlook for 2022

The company stated in its Q4 letter to shareholders that quarter-to-date, there has been a decline in the volatility and prices of crypto assets, leading to crypto market capitalization falling over 20%, while crypto asset volatility has declined by around 10%.

The company pointed out in its letter to shareholders that the volatility in crypto asset prices and macroeconomic headwinds are unknowns making its “business all the more difficult to forecast.”

As a result, COIN anticipates its annual average retail MTUs in 2022 to vary anywhere from 5 million to 15 million.

The volatility in crypto asset prices has led to trading volume trending lower per retail monthly transacting user (MTU) in the first quarter-to-date, with total trading volume of around $200 billion and average retail MTUs coming at approximately 10 million.

This volatility is even expected to drag down COIN’s subscription and service revenues in the first quarter.

As a result, the company expects that retail MTUs and total trading volume will decline in Q1 of 2022 as compared to the fourth quarter of 2021.

Analyst’s Take

Mizuho Securities analyst Dan Dolev, while upbeat about COIN’s Q4 results, was disappointed with the company’s lack of visibility regarding its outlook for 2022, making financial modeling difficult for the analyst.

As a result, the analyst remained sidelined on the stock with a Hold rating but kept a price target of $220 (25.6% upside) on the stock. Dolev arrived at this price target by assigning a multiple of 7x on COIN’s projected revenues in 2024.

The analyst added, “This contemplates COIN’s expected rapid growth, but also considers risks from volatility and pricing pressure.”

Other analysts, however, are bullish about this stock, with a Strong Buy consensus rating based on 11 Buys, one Hold, and one Sell. The average COIN stock prediction is $317.25, which implies upside potential of approximately 81.6% to current levels for this stock.

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