Shares of the large cryptocurrency exchange Coinbase (COIN 6.17%) fell roughly 1.5% today, despite an extremely upbeat day in the broader markets in which the Dow Jones Industrial Average finished the day 834 points higher and the Nasdaq Composite rose 1.6%.
Coinbase reported earnings for the fourth quarter of 2021 after the market closed yesterday. While the company's earnings per share of $3.32 and total revenue of nearly $2.5 billion in the quarter beat estimates easily, investors were not pleased with the guidance.
Management said that the company has seen lower volatility and crypto prices thus far in the current quarter. As a result, retail monthly transaction users (MTUs) are expected to decline from the 11.4 million reached at the end of 2021, while trading volume is also expected to decrease from the $547 billion of volume seen in Q4.
The full-year outlook is full of volatility as well, with annual average retail MTUs expected to land somewhere in the wide range of 5 million to 15 million. In 2021, the annual average MTUs came in at 8.4 million. Expenses are also slated to rise this year. Coinbase CEO Brian Armstrong said on the company's earnings conference call that he expects the company to be profitable in the mid or high end of the MTU range.
A few of the issues with Coinbase is that the stock moves in a heavily correlated fashion to Bitcoin, largely because so much trading volume on the platform is related to Bitcoin. Additionally, most of Coinbase's revenue is still from retail investors, which can be volatile as the crypto market swings up and down.
While most transaction revenue still comes from the retail side, Coinbase grew institutional transaction fees by more than 500% in 2021. Additionally, trading volume from Bitcoin only made up 24% of total volume in 2021 as opposed to 41% in 2020, although a lot of cryptocurrencies tend to move with Bitcoin. Still, as the company continues to diversify revenue and trading volume, the stock should get more stable.
Despite the volatility since going public, analysts have remained quite bullish on the stock, giving it a median price target of $300, which implies about 70% upside. For all of these reasons, I would rate Coinbase as a buy right now.