Last week, I predicted that Coinbase's (COIN -5.10%) business was set up for a big quarterly report given the market's trends. Bitcoin and Ethereum trading were up from the previous quarter, and since Coinbase makes money on transaction volume -- not crypto prices -- that pointed to a solid fourth quarter. The company has also been expanding into new services, like custody of crypto for institutions, that should drive new revenue streams.
When Coinbase reported fourth-quarter results after the market closed on Thursday, it was hard to do anything but be amazed by the results. Coinbase has been public for less than a year, but it's been an absolute growth machine in cryptocurrency and I think it will prove to be a steal at today's price.
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Coinbase's booming crypto business
The headline numbers were impressive for Coinbase, with $2.49 billion in revenue in the fourth quarter and net income of $840 million. Results were helped by increased trading volume, but there are some key fundamental metrics to look at:
- Monthly users jumped from 7.4 million in the previous quarter to 11.4 million in Q4 2021. Users who have verified their identity increased from 73 million to 89 million.
- The company grew its market share of trading volume in 2021, and is diversifying revenue with over $500 million in subscription and services revenue in 2021.
- It has $7.1 billion in cash and $1 billion in crypto on the balance sheet.
Take the cryptocurrency volatility out of the equation, which will lead to choppy financial results, and you can see users are adopting this platform. If the cryptocurrency economy grows over time, this will be a great stock to own.
More opportunities
These results don't even account for some of the most exciting developments taking place at Coinbase. The company is preparing a non-fungible token (NFT) marketplace, updating its wallet, and building a platform for developers to build on top of for Web3 applications.
As the crypto economy matures, there will need to be more mature and easy-to-use points in the ecosystem. Coinbase has made one of the simplest trading platforms, and now it's trying to build out infrastructure like the NFT marketplace, identity services, advanced storage, and more.
Don't forget that Coinbase has invested $360 million in start-ups through Coinbase Ventures, and that could be a value driver for the company long-term.
A cheap growth stock
The stock dipped after the company's report -- though it rose in trading on Monday -- and it seems investors were initially focused on the fact that management said transaction volume will likely be down in the current quarter compared to Q4 2021, which is due to normal volatility in the market. But I'm not worried about that because the long-term trends are strong for the company and the crypto economy overall.
What I'm amazed by is how cheap Coinbase stock is. The company's market cap is $38.6 billion as I'm writing this, and it has a net cash/crypto balance of $4.7 billion after pulling out debt. That's a $33.9 billion valuation excluding net cash/crypto for a company that reported $3.6 billion in net income last year and grew revenue 545% last year.
That growth rate likely won't be repeated in 2022, but investors can get a leading crypto growth stock for 9.4 times trailing earnings with multiple major growth opportunities on the horizon. This is a stock that's entered "no-brainer" territory for me, and I'll be buying more shares soon.
