Cryptocurrency growth and adoption is still at an early stage. Coinbase Global, Inc. (COIN), with an asset-light business, is well-positioned for strong free cash flows in the long-term. I am bullish on the stock.
Coinbase was certainly among the hottest initial public offerings of 2021.
Upon listing, the stock surged to highs of $429.50 per share. However, the initial euphoria quickly fizzled out and COIN stock has struggled to witness any sustained upside. (See Coinbase stock charts on TipRanks)
More than a quarter after listing, it seems that Coinbase has settled in the broad range of $220 to $260. Timing the markets is difficult, but COIN stock might be positioned for a rally from current levels.
Bitcoin Rally and Wider Cryptocurrency Adoption
It’s worth noting that Coinbase’s listing coincided with the peak for Bitcoin at $64,863.10 in April. Bitcoin would of course fall below $30,000 levels soon after. The altcoins rally also lost momentum. This is one factor that contributed to Coinbase’s decline.
At the same time, the world of cryptocurrency faced regulatory hurdles. China’s ban on Bitcoin mining impacted sentiments significantly. However, it seems that the worst of the downside is over for cryptocurrencies.
Bitcoin is trading near $50,000 and cryptocurrency adoption has continued to gain traction. In June 2021, global cryptocurrency users surged to 221 million, as compared to 106 million in January 2021.
Bitcoin’s rally, and the wider adoption of cryptocurrencies, are likely to be positives for Coinbase.
Strong Growth Likely to Sustain
Even as COIN stock remains depressed, the company has reported strong quarterly numbers. For Q2 2021, net revenue increased by 1,097% year-over-year to $2.2 billion. For the same period, the company reported a healthy EBITDA margin of 50%.
It’s also worth noting that for the first half of 2021, the company reported operating cash flows of $2.38 billion. It’s clear that the company has an asset-light business model, and margins are robust. As growth sustains, the company is likely to be a long-term cash flow machine.
In the medium-to-long-term, there are several factors that can support top-line and cash flow growth. For Q2 2021, Coinbase reported institutional trading volume of $317 billion, compared to $17 billion in Q2 2020. The company already has a user base of more than 9,000 institutional clients. This segment is likely to remain a key growth driver in the next few years.
Coinbase has continued to list new coins on the company’s trading platform. As the number of cryptocurrencies increase, the user base is also likely to expand. It’s worth noting that in Q2 2021, 50% of the trading volume was outside Bitcoin and Ethereum. Further, for the first half of 2021, the company added 29 new assets for trading and 39 new assets for custody.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, COIN stock comes in as a Moderate Buy, with 11 Buys, three Holds, and one Sell assigned in the past three months.
The average Coinbase price target is $355.54 per share, implying 39.4% upside potential from current levels.
Concluding Views
In Q2 2021, Coinbase obtained licenses from regulators for entry into Japan and Germany. International expansion is likely to ensure healthy growth in monthly transacting users.
The growth of use cases like decentralized finance and non-fungible tokens is also likely to support upside in the number of assets on the company’s trading platform.
Overall, it seems very likely that strong growth momentum for Coinbase will sustain in the coming quarters. This makes COIN stock very attractive.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article
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