Coinbase (COIN) operates internationally as a prominent provider of end-to-end financial infrastructure for the “crypto-economy.”
In late September, I published a piece explaining that while Coinbase is without a doubt a speculative investment, it also holds the potential to be highly rewarding. Since then, shares have skyrocketed by more than 45%, with investors likely assessing the company’s potential more accurately.
The company’s dual focus positions Coinbase in an advantageous position amongst its peers. It both provides retail users with access to comprehensive financial accounts, and grants large institutions a safe marketplace with sufficient liquidity positions.
Cryptocurrency is becoming increasingly accepted as an alternative asset class with countless potential applications. Coinbase’s unique angle as an infrastructure piece in the crypto-economy allows investors to take full advantage of that growing market, with a mitigated risk compared to investing directly in cryptos. For this reason, Coinbase is my favorite play in the space. With the company’s latest results coming in strong, I remain bullish on the stock. (See COIN stock charts on TipRanks)
Q3 Results: Strong Quarter
Coinbase’s Q3 results came in exceptionally strong, with revenues increasing 316% to $1.31 billion. While retail transaction revenue was $1.0 billion, a decrease of 44% sequentially, this should be of minimal concern. That’s because it is expected that the company’s performance will be naturally impacted by the underlying volatility in cryptos each quarter.
The metrics that really mattered, however, came in stronger than ever. Monthly Active Users grew 252% to 7.4 million versus the prior-year period.
Additionally, one of the most significant developments is the company’s growing institutional appeal, which solidifies Coinbase’s industry-leading position in the crypto space. The company launched Coinbase Prime for its institutional users in mid-Q3; this best-in-class offering combines comprehensive trading tools, trusted custody, advanced analytics, and financing in a single application. During the quarter, institutional trading volume was $234 billion, a whopping 766% higher year-over-year.
In my view, due to Coinbase’s position as the only U.S.-based publicly-traded company amongst its peers, it will continue to be the number one choice for institutions. The institutions value its transparent operations and financials. Furthermore, considering that we are still in the early stages of institutions jumping into the crypto space, Coinbase’s institutional revenues should continue soaring for years to come.
Also in Q3, net margins remained massive. That’s thanks in part to Coinbase’s frictionless business model, which lacks extraordinary operating costs. As a result, the company achieved a net income of $406 million, implying an impressive net income margin of 32.8%.
Additionally, it’s worth noting that despite the lower trading volumes sequentially, as expected, the total amount of assets on Coinbase’s platform grew 41.7% quarter-over-quarter or 608% year-over-year, which is incredibly promising in terms of the overall trend of global crypto adoption.
At a market cap of only $87.09 billion and an FY2021 consensus EPS estimate of $13.29, Coinbase’s P/E ratio currently stands at around 29.6, which sounds like a bargain, in my view. That’s especially so when considering Coinbase’s ongoing growth and rich profitability, which would prevent dilution moving forward.
Wall Street’s Take
Turning to Wall Street, Coinbase has a Strong Buy consensus rating, based on 13 Buys, two Holds, and one Sell assigned in the past three months. At $398.00, the average COIN price target implies 19.68% upside potential.
Disclosure: On the date of publication, Nikolaos Sismanis had a beneficial long position in the shares of Coinbase through stock ownership.
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