Shares of cryptocurrency-trading platform Coinbase Global (COIN 5.23%) plummeted 40.6% in April, according to data provided by S&P Global Market Intelligence. This was far worse than the 8.8% decline for the S&P 500 and even worse than the hefty 17.9% drop for Bitcoin -- a good proxy for the cryptocurrency space as a whole. It seems most investors still doubt that the crypto market has long-term upside and also doubt that Coinbase is the best-positioned player in the space.
Coinbase stock is now down almost 70% from its all-time high in 2021.
In 2021, Coinbase generated revenue of $7.4 billion (up over 500% year over year) which resulted in $3.6 billion in net income. That's impressive. However, investors aren't wowed by these numbers because 88% of revenue came from charging fees to retail traders (not institutions) for buying and selling cryptocurrencies.
The fear is that if trading volume goes down, so will Coinbase's fortunes. Additionally, if competition heats up, it could result in a race to the bottom with fees.
Reflecting these uncertainties, many prominent Wall Street analysts lowered their price targets for Coinbase stock in April. The most extreme cut likely came from Wedbush analyst Moshe Katri on April 27. According to The Fly, Katri lowered his price target for Coinbase stock from $380 per share to $160 per share, citing trading volume challenges.
Of course, it should be noted that Katri's $380-per-share price target came in November. So Coinbase stock fell about 60% before the price target was cut by about the same percentage.
Not only is most of Coinbase's revenue derived from trading volume, most is also generated from U.S. customers. However, the company plans to hire an astonishing 6,000 new workers in 2022, largely to support international expansion. In fact, on April 4, CEO Brian Armstrong announced that it's hiring 1,000 people to support its expansion into India alone.
Coinbase is trying to diversify its revenue via international expansion. Moreover, the company is also trying to diversify by launching new products, like its recent marketplace for trading non-fungible tokens (NFTs). However, the NFT expansion is another move getting a lukewarm Wall Street reception. According to The Fly, Mizuho analyst Dan Dolev called the NFT marketplace a "costly" product and later said the NFT "party may be short-lived."
Be that as it may, it's hard to imagine a future in which Coinbase doesn't play a significant role in the cryptocurrency space. Therefore, if you believe cryptocurrency will play an important part in our world's future, it may be time to take a closer look at Coinbase stock.
Coinbase will report financial results for the first quarter of 2022 on May 10.