Stock Analysis & Ideas

Coinbase Stock: Ready to Outperform

Cryptocurrencies haven’t gotten off to the greatest start. As of writing, Bitcoin and Ethereum are sitting on losses of approximately 7% and 11.5%, respectively, in 2022. Crypto indexes continue to slog through a mini-bear market that began in the late fall and are down 30-35% from all-time highs.

The impact has been felt across the industry, and companies such as Coinbase Global (COIN), a company most known for its cryptocurrency trading platform, are also being dragged down. For its part, Coinbase’s 2022 chart mirrors that of Bitcoin and Ethereum and is currently sitting on losses of ~8.5% year to date.

While a drop in cryptocurrency price is no doubt disappointing, the volatility is actually a good thing for Coinbase. It is one of the reasons why I remain bullish despite the uncertain environment.

Disappointing Performance

It hasn’t even been a year since Coinbase’s IPO, which took place in April of 2021. One look at the company’s chart, and you’ll notice considerable volatility in its share price.

The entire crypto space is still in its infancy, and investors are still having a hard time putting a value on companies that operate in the industry.

Interestingly, Coinbase only briefly eclipsed its day one IPO price went Bitcoin and Ethereum hit all-time highs. Outside of that, the company has traded below its IPO day high of $429.54 per share.

Leading Crypto Exchange

While it is new to the markets, Coinbase has been around for a decade. Founded in 2012, Coinbase is the leading cryptocurrency exchange platform in the United States. It is positioning itself to be the safe and regulation-compliant point of entry for retail investors and institutions into the cryptocurrency economy. Coinbase’s platforms enable users to make crypto transactions, and it also acts as a custodian for their cryptocurrency.

The company generates most of its revenue from transaction fees charged to customers, but it is diversifying as it expands into adjacent businesses such as prime brokerage, data analytics, and collateralized lending.

Circling back to transaction fees, the company makes money regardless of crypto prices. This is where investors are a little short-sighted. The more volatile the industry, the more transactions occur and the more fees Coinbase collects. While the fees are likely to be lower, what it lacks because of a dip in price, Coinbase makes up in terms of volume.

Coinbase is trading at only 28.9 times forward earnings and 6.6 times forward sales. Considering the company is expected to grow at a very rapid clip over the next three to five years, it is well priced.

NFT Marketplace

Outside of the company’s status as a leading exchange platform, Coinbase is ready to make a big splash in the NFT industry. In the fall, Coinbase announced its intentions to launch a Non-Fungible Token (NFT) platform, which is intended to compete with OpenSea, the largest NFT marketplace in the world.

The NFT industry is booming, and through the first few weeks of January, trailing 12-month sales have consistently eclipsed $2 billion as the total number of transactions has been trending upwards. OpenSea accounts for most of that volume and takes a 2.5% fee on each transaction. On $2 billion, that is $50 million in monthly revenue.

The exciting part is that OpenSea has just under a million users, and there is vast room for expansion as only a fraction of those invested in crypto have transitioned to NFTs. It is why the industry is eagerly anticipating Coinbase’s NFT platform as it will bring the masses into the space.

Coinbase has approximately 73 million verified users, and in the days following its intentions to launch an NFT platform, 1.35 million users had signed up for early access. Coinbase’s NFT marketplace has the potential to be a game changer.

Wall Street’s Take

Turning to Wall Street, Coinbase earns a Strong Buy consensus rating based on 13 Buys, one Hold, and one Sell rating assigned in the past three months.

The average Coinbase price target of $411.43 puts the upside potential at 77.6%.

Conclusion

Today, Coinbase is trading at attractive valuations. Add in the fact the company is very likely to become one of the largest NFT marketplaces in the world, and I’d expect Coinbase to outperform the markets in the years to come. 

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