Coinbase Global (COIN +2.57%), which owns one of the world's largest cryptocurrency exchanges, saw its stock close at an all-time high of $357.39 on Nov. 9, 2021. The bulls rushed to the stock as cryptocurrency prices soared and investors aggressively accumulated shares of growth and meme stocks.
But today, Coinbase's stock trades at about $109 a share. It plummeted about 70% as rising interest rates drove investors away from cryptocurrencies, meme stocks, and other speculative investments. The failures of several high-profile tokens and exchanges also drove government regulators to tighten their grip on the freewheeling crypto market.
Image source: Getty Images.
Last year, Coinbase's CEO Brian Armstrong admitted a new "crypto winter" was starting as the company's growth stalled out. It executed mass layoffs to cut costs, but it's still unclear when its business will actually stabilize. Should value-seeking investors pick up some shares of Coinbase today before the cryptocurrency market fully recovers?
NASDAQ: COIN
Key Data Points
Its business is still shrinking sequentially
Coinbase's revenue rose 545% in 2021 but declined 57% in 2022 and dropped 16% year over year in the first nine months of 2023. Coinbase didn't provide any revenue guidance for the full year, but analysts anticipate an 11% decline.
Back in the first quarter of 2023, Coinbase's business seemed to be stabilizing on a sequential basis with flat trading-volume growth and an uptick in its revenue. But over the past two quarters, both metrics declined sequentially again.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
Trading volume |
$159 billion |
$145 billion |
$145 billion |
$92 billion |
$76 billion |
|
Revenue |
$576 million |
$604 million |
$736 million |
$663 million |
$623 million |
Data source: Coinbase.
Those declines suggested that Coinbase was struggling to keep pace with the broader cryptocurrency market. Since the beginning of the year, Bitcoin's (BTC +1.48%) price has risen more than 120% as Ether's (ETH +1.00%) price climbed over 70%.
In 2023's Q3, Coinbase generated 38% of its trading volume from Bitcoin and 19% from Ether. However, 15% of its trading volume came from the Tether stablecoin, which has stayed flat year to date. The remaining 28% of its trading volume came from "other crypto assets," which include smaller tokens, non-fungible tokens (NFTs), and other assets that flopped over the past year.
In other words, Coinbase would have fared better if it had simply facilitated Bitcoin and Ether trades instead of expanding into stablecoins and more speculative crypto assets. Investors would also probably have fared better by simply buying Bitcoin and Ether, or investing in the exchange-traded funds (ETFs) which track their futures over the past two years.
Data source: YCharts.
Coinbase's decision to stop disclosing its monthly transacting users (MTUs) and total assets on its platform over the past year is also troubling since we can't tell how many people are actually using its platform and how much money they're investing.
But it's not all bad news
On the bright side, Coinbase's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive again over the past three quarters as it downsized its workforce and reined in its spending.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
Adjusted EBITDA |
($116 million) |
($124 million) |
$284 million |
$194 million |
$181 million |
|
Adj. EBITDA margin |
(20%) |
(21%) |
39% |
29% |
29% |
Data source: Coinbase.
However, its adjusted EBITDA is still declining sequentially along with its revenue. It expects to generate "meaningful positive adjusted EBITDA in full-year 2023."
Analysts expect Coinbase to generate a positive adjusted EBITDA of $833 million for the full year. With an enterprise value of $24 billion, it still trades at about 29 times that estimate, so it can't be considered a screaming bargain yet.
Coinbase's future looks murky, but a few catalysts might be on the horizon. Cryptocurrency prices could climb higher over the next few quarters as interest rates stabilize, approvals for Bitcoin ETFs based on spot prices could bring in more institutional investors, and Coinbase might just be the last man standing as other crypto exchanges collapse. FTX went bankrupt a year ago, and Binance could be in trouble after its founder and former CEO pleaded guilty to violating the Bank Secrecy Act.
Coinbase also significantly narrowed its net losses over the past year, and it still has $5.5 billion in liquidity. Therefore, it can afford to wait for the crypto winter to end as long as it steers clear of the problems that sank FTX and torpedoed Binance.
Is it the right time to buy Coinbase?
Coinbase should survive the ongoing crypto winter, but its capital-intensive business model, exposure to lower-quality crypto assets, and high valuations make it a risky buy. If you're bullish on cryptocurrencies, it makes more sense to directly buy Bitcoin or Ether -- or even the ETFs that track their future contracts -- instead of investing in Coinbase's volatile stock.
