Coinbase Global, Inc. (COIN) is undoubtedly one of the prominent cryptocurrency exchanges globally in terms of daily trading volume. As per data from CoinMarketCap, Coinbase is the third largest exchange in terms of spot market exchanges at the moment. Accordingly, COIN stock is often seen as a key way for investors to gain exposure to the crypto space right now.
That’s due in part because Coinbase is not only publicly traded, but has a number of unique growth levers which provide productive support beyond just investing in traditional cryptocurrencies. Despite these factors, the stock has been on a considerable decline since reaching its mid-November highs.
Partly causing this drop in valuation is Coinbase’s reliance on crypto trading volumes to bring in revenues. As a result, slow declines in Bitcoin (BTC) creates fluctuating quarterly earnings for COIN. Trading revenues from retail investors, which make up nearly 90% of the company’s revenue, are just as volatile. Accordingly, there are investors who may look at Coinbase as a difficult-to-assess company, due to the speculative nature of the cryptos on which it depends.
Thus, I’m neutral on Coinbase right now. The company’s recent earnings don’t provide much in the way of clarity with respect to which direction this stock will go.
That said, let’s dive into what may take the stock higher or lower this year, as crypto has been slightly rebounding over the last week.
Diversity Beyond Ethereum and Bitcoin
In previous earnings reports, it was noted that Coinbase earned the majority of its revenue via Bitcoin and Ethereum trading. However, this past quarter has seen the overall share of Bitcoin and Ethereum trading volumes stand at 32% overall. This was split evenly and 16% apiece between the two.
This marks a dramatic decline from a year ago, when these two top tokens made up nearly two-thirds of the total trading volume for Coinbase.
What Does this Signal?
Well, it appears investors are diversifying their crypto holdings substantially. Smaller-cap tokens that have seen impressive gains are being picked by investors over the mega-cap tokens. For Coinbase, which really started as a way for investors to hold Bitcoin, this marks a dramatic shift.
Recently, retail trading volumes did hit new highs, spurring a profitability surge this past quarter. Despite this development, the company’s forward outlook was one that wasn’t necessarily bullish. Coinbase’s management noted that volatility makes it difficult to project growth moving forward. Accordingly, investors have been taking a cautious response to these numbers.
Nonetheless, the fact that Coinbase is becoming a more diverse trading platform is a factor that could be seen in an optimistic light. As more tokens are added to Coinbase, this crypto exchange could see some impressive growth. That is, depending on whether the crypto market continues higher or not.
Other Takeaways from Earnings
Coinbase’s average revenue per user (ARPU) numbers appear to be rather sturdy, at least over the past year, excluding Q3. However, the volatility we’ve seen, starting with growth, followed by declines, followed by growth again, doesn’t tell a very attractive story for many risk-off investors.
Of course, we all know crypto is volatile. However, seeing this volatility shape the returns of a publicly traded exchange, is worrisome.
The other key worry some investors have with Coinbase is related to the capacity of the company to continue charging rather high transaction fees to its users. Traders have the option to choose zero or near-zero fee trading platforms to get around the fees, if need be. Accordingly, the extent to which buy and hold investors will continue transacting en masse on the Coinbase platform remains to be seen.
What are Analysts Saying about COIN Stock?
As per TipRanks’ analyst rating consensus, COIN is a Moderate Buy. This is based on 11 Buy and 2 Hold ratings, and 1 Sell rating.
The average Coinbase Global price target is $305.31, suggesting a possible 12-month upside of 84.20%. Analyst price targets range from a high of $405 per share to a low of $200 per share.
Bottom Line
Coinbase’s unique business model provides increased profitability to the company. However, due to extreme volatility in the crypto market, its future estimates are a bit blurry. This adds more complexity for analytics to paint a predictable picture.
Those taking a long-term bullish view of the crypto sector, and who view Coinbase as a central player in the space, may not mind this near-term volatility. One investor’s drop in valuation is another investor’s buying opportunity, after all.
However, for those who simply don’t like the risk associated with this sector and the volatility COIN stock provides, there are other more risk-averse opportunities in the market.
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