Coinbase Global (COIN), the parent company of the popular cryptocurrency exchange Coinbase, has seen its stock punished over recent months, which has investors wondering if now would be a good entry point.
The company, which generates its revenue via transaction fees from customers buying and selling cryptocurrencies like Bitcoin, will report first quarter fiscal 2022 earnings results after the closing bell Tuesday. Listing about 50 cryptocurrencies for trading, an estimated 90% of the company’s revenue comes from transaction fees and services like storage. Once perceived as a strong market to be in, investors have shifted their stance on the growth prospects of the industry.
While Coinbase has planted itself at the forefront of the cryptocurrency industry to become largest U.S. cryptocurrency exchange, skeptics have argued over how durable the trend is. Some are suggesting the popularity of cryptocurrencies Bitcoin and Ethereum is frenzy-driven and will soon dissipate.This level of fear has put Coinbase shares under considerable pressure in recent weeks, falling as much as 40% from their peak. One such skeptic is prominent billionaire investor Jim Chanos who revealed he had a sizable short position on Coinbase.
Appearing on CNBC several weeks ago, Chanos said, “We basically think Coinbase is over earning,” Chanos said in the interview. “If you do the numbers, their revenue base is roughly 3% to 4% of their custodian assets, their customer assets.” Since that call on March 18, Coinbase stock has fallen some 55%, from about $186 to current levels of around $83. But Coinbase can change the bearish perception by delivering a top and bottom line beat, along with outlining its path towards sustainable profits.
In the three months that ended March, Wall Street analysts expect the Wilmington, DE-based company to earn 17 cents per share on revenue of $1.48 billion. This compares to the year-ago quarter when it earned $3.05 per share on revenue of $1.8 billion. For the full year, ending December, earnings are projected to be $1.13 per share, down from $14.50 a year ago, while full year revenue of $6.64 billion would decline 15.4% year over year.
While the stock has been under pressure, it’s worth noting that there are still optimists who believe in the business. Wedbush analyst Dan Ives considers Coinbase to be “a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto for the coming years.” What’s more, several other analysts expect Coinbase to diversify its business and branching off to various growth segments, including non-fungible tokens (NFT).
That said, before any confidence can develop in the company’s ability to diversify, management must demonstrate it can execute on the current business. In that vein, it has been encouraging. In the most recent quarter, the company beat on both the top and bottom lines, reporting Q4 EPS of $3.32 which beat Street estimates by $1.43. Q4 revenue was also solid, rising 330% year over year to $2.5 billion, surpassing estimates by $510 million.
However, the good news didn’t last. The company issued disappointing guidance, which sent the stock 6% lower. All told, while the stock is highly correlated to the volatility of cryptocurrencies, Coinbase has established a business that is rapidly growing. And with the stock down 80% from its peak, the risk-versus-reward view has tilted towards the positive side.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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