The price of Bitcoin endured a brutal fall from grace over the last 11 days, and for Wedbush analyst Moshe Katri it “sounds like an opportunity.”
In an initiation of coverage report, Katri encouraged investors to buy not Bitcoin per se, but rather the leading exchange for buying and selling the stuff, cryptocurrency trading platform Coinbase Global (COIN).
Katri is convinced the stock will go to $275 within a year (~20% gain) and, as such, he gives it an Outperform (i.e. Buy) rating. (To watch Katri’s track record, click here)
As the analyst explains, Coinbase is a “‘one stop shop'” platform, enabling roughly 56MM retail users, 8,000 institutions, and 134,000 ecosystem partners in over 100 countries to participate in the crypto economy.”
Thus Coinbase enjoys a first-mover advantage, and as the “default starting place for new user journeys into the crypto economy,” it has parlayed this advantage into a large base of business, with as much as 11% of all cryptocurrencies in existence now stored on the Coinbase platform. As Katri points out, that’s nearly triple the market share in cryptocurrencies that Coinbase enjoyed just a couple years ago, at the end of 2018. And in addition to the best-known currencies Bitcoin and Ether, Coinbase also supports trading in over 90 other cryptocurrencies.
The company is so dominant in crypto, in fact, that doesn’t even have to advertise all that much to attract customers. “Over 90%” of customers whom join the platform, says Katri, join either “organically or through word-of-mouth.” And once it has these customers in the door, Coinbase capitalizes on its advantages with its “focus on user engagement,” and “creates trusted and easy-to-use products,” and “an entire set of ancillary services” for cryptocurrency traders. “With the tap of a finger on a smartphone,” explains Katri, customers can “instantly transfer value globally” over Coinbase by email, or to a phone number or crypto wallet address — often free of charge.
Of course, Coinbase is not a charity. Katri explains that on average, Coinbase collects a 0.57% fee on cryptocurrency transactions over its platform. And he describes transaction volume growth as “massive.”
What does this mean in terms of dollars and cents?
In Q1 2021, Coinbase booked $1.8 billion in revenue, more than it collected in all of 2020. Net income — $322.3 million in 2020 — is believed to have growth to have more than doubled to somewhere between $730 million and $800 million, which works out to a netprofit margin of as much as 44% on revenues.
Taking what may prove to be a conservative view, Katri estimates that Coinbase’s transaction revenues will continue to grow about 20% in fiscal 2022, with earnings reaching $12.10 per share, and revenues will grow another 20% or so in fiscal 2023 (with profits growing similarly). If he’s right about that, then Coinbase at $230 and change today costs less than 19x forward earnings.
No matter what happens to Bitcoin’s price, that seems a cheap valuation relative to Coinbase stock’s 20% growth rate.
Other analysts are even more optimistic. The average price target on Wall Street is $404.75 — implying nearly 75% upside. Overall, COIN earns a Moderate Buy consensus rating based on 8 recent Buys, and 4 Holds. (See COIN stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
