Coinbase Global (COIN), the parent company of the popular cryptocurrency exchange Coinbase, will report first quarter fiscal 2021 earnings results after the closing bell Thursday. The company, which generates its revenue via transaction fees from customers buying and selling cryptocurrencies like Bitcoin (BTC), went public in April via a direct listing. But initial investors are now rethinking their positions. Pricing at $250 per share during the IPO, Coinbase stock netted a valuation of nearly $90 billion by shooting up more than 70% to $429.54 before closing its first day of trading up 31% at $328.28.
"The Coinbase IPO is potentially a watershed event for the crypto industry and will be something the Street will be laser-focused on to gauge investor appetite," Wedbush analyst Dan Ives wrote in a note to clients. "Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto for the coming years."
Listing about 50 cryptocurrencies for trading, an estimated 90% of the company’s revenue comes from transaction fees and services like storage. That’s a seemingly strong position to be in, even when competition from platforms such as PayPal (PYPL) and Square’s (SQ) Cash App emerge. However, the market has taken a different tone. While Coinbase has planted itself at the forefront of the cryptocurrency industry to become largest U.S. cryptocurrency exchange, skeptics have argued whether it has a legitimate business.
Some are suggesting the popularity of cryptocurrencies Bitcoin and Ethereum is frenzy-driven and will soon dissipate.This level of fear has caused Coinbase shares considerable pressure in recent weeks, falling as much as 40% from their peak. The fear persists even though the company earned a profit in 2020, reporting earnings of $1.64 per share on revenue of $1.28 billion. Just as impressively, in the most recent quarter, Coinbase reported strong results, including a 743% surge in EPS to 90 cents per share on revenue of $585.1 million.
Nevertheless, for Coinbase stock to rebound, the company on Thursday must keep the momentum going. In the three months that ended March, Wall Street analysts expects the Wilmington, DE-based company to earn $3.07 per share on revenue of $1.81 billion. For the full year, ending December, earnings are projected to rise 300% year over year $6.51 per share, while full year revenue of $5.23 billion would rise almost 800% year over year.
The whopping 1,756% projected increase in quarterly profits, the company’s first earnings report as a public issue, is nothing short of impressive. Estimates suggest Coinbase will deliver a profit of $750 million in Q1, which would be more than the company earned in all of 2020. The company is also growing its user base at a rapid rate. For Q1 analysts are forecasting the company to report verified users of 56 million, along with estimated $223 billion assets on platform, marking crypto asset market share of more than 11%.
All told, while valuation concerns are understandable given that Coinbase stock is highly correlated to the volatility of Bitcoin and other cryptocurrencies, the company has established a business that is rapidly growing and is already profitable. And with the stock down 30% from its peak, the risk-versus-reward view has tilted towards the positive side. As such, I believe Coinbase stock deserves a long look ahead of Thursday’s results.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.