As goes the cryptocurrency market, so goes Coinbase (COIN -6.52%). The company's stock plummeted 86% in 2022 as investor appetite for the risky asset class plunged and Coinbase saw its trading volume tank.
But this year has been a complete turnaround as far as investor sentiment is concerned. As of Aug. 23, Coinbase shares were up 118% in 2023, crushing the broader Nasdaq Composite Index. They do, however, remain 78% off their all-time high.
After a monster price surge, is now the right time to sell Coinbase? Let's take a closer look at this top cryptocurrency stock.
Most recent financial results
Coinbase's second-quarter financials were better than Wall Street analysts had predicted. Revenue totaled $708 million, with the loss per share of $0.42 marking a significant improvement from the year-ago period. These results follow the first quarter's numbers, which also handily beat analysts' expectations, momentum that has certainly helped to propel the stock.
The revenue figure showed a year-over-year decline that was due to falling crypto asset prices. If prices for various digital tokens are rising, as was the case in 2021, investor interest spikes, and Coinbase benefits as a top brokerage and exchange. But the opposite is also true, as we saw in 2022. These headwinds have spilled over into this year, even though the cryptocurrency market is staging a comeback. During the first six months of 2023, Coinbase had 7.9 million monthly transacting users, down from 9.1 million a year ago.
What's encouraging for shareholders is that in the latest quarter, transaction revenue represented less than half of overall company net sales, compared to an 82% share in Q2 2022. The balance comes from subscriptions and services, which include things like staking rewards and custodial fees. These offerings, a key focal point for the management team, are viewed as being more stable and predictable than trading volumes.
Coinbase is aggressively cutting costs to streamline its operations. The net loss of $97 million in Q2 was less than one-tenth the $1.1 billion it was a year ago. Expenses across the board, for tech and development, sales and marketing, and general and administrative, declined meaningfully. Investors should just hope that Coinbase isn't sacrificing investments that could benefit it over the long term.
The investor's perspective
Although Coinbase once again exceeded Wall Street forecasts, that doesn't overshadow the challenges facing the business. Nonetheless, there are still reasons to be bullish.
Investors who are optimistic about the prospects of the cryptocurrency industry over the next decade and beyond could view Coinbase as a bet on that growth. Coinbase is one of the largest exchanges in the world focused on this asset class, with a long history as a trusted name in the industry, so it could gain as crypto adoption expands.
Moreover, we've already seen how profitable the company can be in more favorable market environments. In 2021, for example, Coinbase registered a 46% net income margin, which is superb. If the business can simply continue to weather the crypto market downturn, maybe there are more outsized profits on the horizon.
On the other hand, there are numerous reasons to be bearish on the stock. The Securities and Exchange Commission has taken legal action against Coinbase because the agency believes the business has been operating an unregistered exchange. And this could be just the beginning of regulatory uncertainty.
As has been the case thus far, Coinbase's financial results in any given period are totally unpredictable and fully exposed to the whims of the crypto market. This not only makes it difficult for shareholders to have any idea how the company will perform in the near term, but it also must be extremely challenging for the management team to plan for. The stock and the underlying business will likely remain volatile; that's just the reality.
It's ultimately up to investors to decide what's best to do with the stock. If you're sitting on huge gains, perhaps it's a good idea to sell and take some profits that can be redirected to other investment opportunities. On the other hand, if you still believe in Coinbase's long-term prospects, remaining a shareholder could be a good idea.
