On June 22, Brian Armstrong, chief executive officer of Coinbase Global (COIN 1.95%), unveiled what he's calling a "super app" strategy for the company. As he explained at the company's State of Crypto Summit in New York, under such a strategy, Coinbase would become less of a centralized exchange, and more of a decentralized mobile app where you manage everything crypto- and internet-related.
Is this just pie-in-the-sky thinking? Or is there something to this strategy that might just work? After all, Elon Musk has been talking up a super app for Twitter for months now. And super apps such as WeChat and Alibaba Group's (BABA +0.46%) Alipay have been popular in Asia for years.
Let's take a closer look at what this could mean for Coinbase, which like so many businesses and investments related to crypto has taken a beating in the past two years.
Why does Coinbase need a super app?
By now, it's no secret that Coinbase is facing a lot of pushback from the Securities and Exchange Commission (SEC) about its crypto activities. The latest was a lawsuit filed against Coinbase at the beginning of June, in which the SEC alleged that Coinbase is an unregistered exchange selling unregistered securities.
So it's clear that the current SEC lawsuit is at least part of the impetus for this strategic rethink of Coinbase's activities. Is it any coincidence that the first mention of this super app strategy came just weeks after the SEC lawsuit? By becoming less of a centralized exchange and more of an "everything" mobile app, Coinbase might just be able to do an end run around the SEC while still being involved in crypto.
The viability of a super app
The super app is not going to be an overnight strategy; it could take at least five years to pull off. Most likely, it would involve Coinbase Wallet, the mobile app that many Coinbase customers already use to manage their crypto.
Basically, you can hold your crypto either on the Coinbase exchange or in your own blockchain wallet (i.e., the Coinbase Wallet). So there's already a way to onboard users to a Coinbase super app without having to start from scratch.
But there's not a lot that you can do with a Coinbase Wallet that's not related to crypto. Obviously, you can send and receive crypto. You can buy and sell crypto, as long as you have connected your Coinbase Wallet to the main Coinbase exchange.
You can manage any digital assets that you might own, such as non-fungible tokens (NFTs). And you can get involved with basic decentralized finance (DeFi) activities, such as staking different cryptos for passive income.
Image source: Getty Images.
To become a true super app, Coinbase would have to go much deeper than this. It would have to layer in all the activities that Chinese super apps like WeChat offer, such as social media, e-commerce, and banking. In China, WeChat is so popular that most people use it for everything they do online.
Potential long-term impact
There are a number of ways that a super app strategy could boost Coinbase's revenue and earnings numbers. For example, Coinbase might be able to charge users a monthly subscription fee for the app.
Currently, Coinbase Wallet is free, so this would be a big change. But it's not out of the question. Elon Musk, for example, is now charging users about $10 per month for premium subscriptions to Twitter Blue.
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But this implies that Coinbase would be able to find enough extra value from non-crypto activities to convince people to upgrade to the new premium level. As a very, very (very) long-term strategy, this might work. But it would pit Coinbase against internet competitors like Twitter, and that would be problematic.
Twitter, for example, is already experimenting with how to add stock and crypto trading via its partnership with trading platform eToro. As an investor, I'd much rather see Coinbase competing against smaller crypto exchanges (where I think Coinbase can win) than against the tech titans of Silicon Valley.
Can Coinbase become a growth stock again?
From my perspective, a super app is a sort of Plan C right now for Coinbase. Plan A is to win its current regulatory battle with the SEC. Plan B is to move everything offshore and focus on offering crypto services outside of the U.S. So if both Plan A and Plan B fail, the transformation to a super app would be Plan C.
That said, I'm impressed by Coinbase's desire to play the long game here. The concept of bundling crypto-based services with other internet-based services is certainly a fascinating one. If Coinbase can make this strategy work, it could go a long way toward changing how investors view the stock, which has fallen almost 70% in the past two years. It would become less of a beaten-down value stock, and more of a long-term growth stock.
