In the dynamic world of investing, seizing opportunities when shares of industry-leading companies temporarily dip can be the key to unlocking substantial long-term gains. Today, we're focusing on two stocks that have been through their share of turbulence but have the potential to deliver significant returns for savvy investors.
Despite their recent setbacks, Coinbase Global (COIN 3.02%) and Tesla (TSLA -1.80%) are both clear leaders at the forefront of their respective industries. Yet, due to various factors, these innovative companies find themselves trading at prices well off from their all-time highs. While declines of this magnitude can be reason for concern, investors with a long-term perspective would be mistaken to treat this as anything but a rare opportunity.
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The crypto pioneer
Coinbase, a prominent player in the world of cryptocurrencies, has had a roller-coaster ride since its initial public offering (IPO) in the spring of 2021. Unfortunately for Coinbase, its IPO coincided with the peak of the most recent crypto bull market. While this timeliness helped the company post a record $1.6 billion in profit, when the broader crypto market experienced a downturn, profitability took a severe hit when it posted a net loss of more than $1 billion in Q2 2022.
One of the primary reasons behind Coinbase's significant losses was its overreliance on transaction fees. During the crypto bull market's peak, Coinbase derived over 90% of its total revenue from transaction fees, which left it vulnerable when the crypto winter set in.
However, Coinbase recognized the need for diversification, and this strategic pivot is showing results. The company expanded its revenue sources by introducing new institutional products, embarking on a strategic international expansion, creating unique staking and subscription products, and even launching its own blockchain, called Base.
These efforts have effectively reduced transaction fees' contribution to less than 50% of total revenue today. Coupled with stringent cost-cutting measures, Coinbase is now on the verge of turning a profit for the first time in over two years with a deficit of just under $100 million.
With Coinbase back on track to regain profitability, investors have a unique opportunity to invest in a company well-positioned to benefit from ongoing trends in crypto adoption. Although shares are currently trading more than 70% below their all-time highs, the company's refined business model and optimized strategies are positioning Coinbase to take advantage of the next crypto bull market and establish itself as a crypto leader for years to come.
Forging a new frontier
Despite Tesla's impressive ascent to become one of the world's most valuable companies, it hasn't been immune to the tumultuous macroeconomic landscape. Inflation and high interest rates have recently impacted Tesla's bottom line. The company is building a reputation for record-breaking quarters, and investors have had to adjust expectations as Tesla navigates an economic environment that is less than favorable for luxury items like new vehicles.
To stimulate demand in these challenging times, Tesla implemented unprecedented price cuts across several models. While this has helped maintain revenue near all-time highs, these price reductions have compressed Tesla's profit margins. Declining in five out of the last six quarters, its current gross profit margin is just under 18%, the lowest since 2019.
As Wall Street fixates on short-term concerns, the case for Tesla remains compelling when considering its business ventures beyond just electric vehicles. Although most of Tesla's revenue currently comes from electric vehicles, the company is at the forefront of a technological revolution that could transform its profitability -- autonomous driving.
Even though progress remains before drivers are no longer necessary, Tesla is making significant strides toward achieving this goal, and when it does, CEO Elon Musk plans to launch a robotaxi business. Citing "quasi-infinite demand" and the potential to turn Tesla into a $10 trillion company, Musk believes the achievement of autonomous driving and the creation of a robotaxi fleet will be an endeavor talked about 100 years from now.
Adding further context during a recent earnings call, Musk explained that while the current economic climate poses challenges, Tesla's focus on autonomy will make any short-term turbulence irrelevant and make "these numbers [profit margins] look silly." As such, this presents a unique opportunity for investors while prices trade at over 50% below their all-time highs. By investing now, investors can reap the benefits of Tesla's long-term vision and gain exposure to one of the most innovative companies on the market today.
