The entrance of Coinbase Global (COIN 0.22%) on the Nasdaq in April 2021 was nothing short of monumental, yet the journey since then has been dismal. Shares have mostly been in free fall after hitting an all-time high of $343 in September 2021 at the peak of the recent cryptocurrency market's bull run. Plummeting by over 87%, the stock sank to a mere $32 at one point.
However, since the beginning of 2023, the stock has more than doubled. There are likely a handful of reasons behind this resurgence, but three in particular suggest Coinbase has turned a corner. It could be time for investors to give this beaten-down stock a chance.
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1. Diversifying revenue
The recent challenges Coinbase has faced are primarily due to the recent crypto winter. Because the company relied so much on fees generated from crypto trading, the company's income subsequently took a hit as transaction volume plunged and prices dwindled. While this business model yielded astonishing results at the height of the bull market, yielding $3.6 billion in net income in 2021, dependence on these same transaction fees contributed to a net loss of more than $2.6 billion the following year.
But things have changed. Responding with agility and resilience, Coinbase underwent a significant transformation to diversify revenue streams and mitigate dependence on trading fees. These efforts are now proving fruitful as an array of new products, including subscription-based services, institutional offerings, and innovative interest-earning products, are diversifying income and reducing reliance on trading.
Evidence of this can be found when analyzing the proportion of revenue produced by transaction fees. At its peak, these fees made up nearly 95% of the company's revenue, but today they constitute just half.
2. Cost-cutting measures
While diversified revenue streams have helped Coinbase narrow its net losses, another area of emphasis for the company has been the rigorous pursuit of cost reductions. Evident in its recent Q2 2023 earnings report, Coinbase has orchestrated a commendable decrease in expenses, effectively slashing them by over 50%.
To reduce costs, Coinbase decided to let go of more than 2,000 employees. With the departure of 1,100 staff members in June 2022, followed by an additional 950 in January 2023, the company achieved three cost-saving benefits.
First, it saved money previously allocated for salaries. Second, it encouraged the remaining employees to adopt new cost-saving workflows related to data storage and utilization -- an accomplishment acknowledged during recent earnings calls. Finally, with a smaller workforce, the company was able to reduce its real estate expenses and further amplified savings with an embrace of remote work.
Novel revenue streams and the culmination of cost-cutting strategies are finally appearing in the company's financial health. Since the beginning of 2023, Coinbase posted consecutive quarters of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for two successive quarters, a pivotal metric for monitoring cash-flow dynamics.
NASDAQ: COIN
Key Data Points
3. A clear long-term vision
Continuing its prioritization of developing new sources of income and mission to advance crypto's development, Coinbase is active on many fronts that could solidify future success. One is its international expansion.
With its "Go Far, Go Broad" strategy, Coinbase is expanding its global presence and already developed an international derivative exchange. Accounting for 75% of global crypto trades last year (though not in the U.S. because of regulatory objections), perpetual futures are a type of derivative contract now offered by Coinbase, creating yet another source of income.
In addition, Coinbase extended its subscription product, Coinbase One, to more than 34 countries, homing in on financial hubs with more explicit regulatory frameworks, such as Singapore, the U.K., Brazil, and the E.U.
More recently, Coinbase made headlines with the release of its own blockchain called Base, part of the company's goal to onboard 1 billion users to crypto and foster the creation of more crypto-based use cases beyond payments.
With Base, developers and companies can build new decentralized applications and blockchain-based business models while creating additional revenue for Coinbase. In its initial days of operation, Base piled up fees exceeding $1.6 million, and analysts estimate that the new blockchain could generate as much as $60 million in additional revenue. If activity keeps at its current pace, estimates could easily be surpassed.
As Coinbase continues to diversify its product suite, the company is also busy advocating for crypto with domestic and international politicians. To support these efforts, Coinbase recently launched the Stand with Crypto Alliance, a nonprofit organization for promoting pro-crypto legislation. In addition, Chief Executive Officer Brian Armstrong has become a regular in the halls of Congress as he continues advocating for crypto's positive disruptive potential and its ability to forge a new economic future.
Demonstrating resilience
The past few years have posed challenges, yet Coinbase has demonstrated resilience, emerging more robust and financially secure. Although Coinbase is relatively new as publicly traded company, its history extends over a decade, a testament to its ability to navigate the unpredictable fluctuations in the crypto market.
As crypto continues on its path to recovery and Coinbase matures, it looks as if the company is on the road back to profitability. With its share price now about 75% below the peak, it might finally be time to give Coinbase a shot.
