Cryptocurrency continues to be volatile, marked by mind-blowing ups and downs in price and by regulatory uncertainty with both court battles and fraud, including controversy hitting the world's largest exchange, Binance.
Investors in its U.S. competitor, Coinbase (COIN 5.68%), have also been put through the wringer. The stock has gyrated between $32 and $357. Depending on whom you ask, Coinbase is either a future pillar of the digital economy or a bankruptcy waiting to happen.
Optimism has paid off during the past year. The stock has nearly tripled in just 12 months, and Coinbase's recent Q4 earnings showcase the company's potential.
Is it too late to buy the stock?
Coinbase is evolving beyond exchange fees
That cryptocurrencies like Bitcoin are largely decentralized is a double-edged sword. On the one hand, they are entirely independent of a central bank and can even be held offline in cold storage wallets. On the other hand, using them in the broader economy can be difficult. Coinbase is a cryptocurrency exchange that provides a trading venue for crypto buyers and sellers, but its full vision is to build a digital economy on cryptocurrency.
To this end, it has a number of products. For example, a Coinbase payment card allows you to spend your crypto by converting it to U.S. dollars at the point of sale. The company has also expanded outside the U.S., where an estimated 80% of crypto trading occurs. Coinbase has over 100 non-U.S. institutions on its exchange today.
Transaction fees generated from crypto trades were 96% of net revenue in 2020. Coinbase has grown its revenue from subscriptions and services to $1.4 billion in three years. That's a tremendous feat that probably doesn't get the attention it deserves from Wall Street. Trading fees from the exchange will likely ebb and flow based on sentiment, but these other revenue streams can hopefully smooth out Coinbase's business a bit over time.
Flexing its financial strength
Coinbase stock surged after the release of Q4 earnings, and for good reason. Analysts were expecting Coinbase to earn just $0.01 per share, which its actual $1.04 blew away. It's a pleasant surprise but shows how complex predicting Coinbase's business can be. Investors should expect ups and downs while Coinbase and cryptocurrency evolve.
COIN Cash and Short Term Investments (Quarterly) data by YCharts
Management's success in recovering from multibillion-dollar losses in early 2022 shows its ability to adjust the business on the go, and its current $5.7 billion in available cash gives a financial buffer for tough times. It recently paid down 12% of its debt, leaving $3 billion in remaining long-term debt.
Is Coinbase stock right for you?
Cryptocurrency has only been relevant for about a decade. It's a very young industry, meaning Coinbase has a long journey ahead.
So is it too late for investors to buy Coinbase? If you're looking years into the future, Coinbase could be just getting started.
There are still risks, including Coinbase's court battle with the Securities and Exchange Commission over how cryptocurrencies should be regulated. As a publicly traded company, Coinbase could add needed stability to cryptocurrency after the controversy with privately held exchanges like Binance and FTX.
You probably aren't going to invest in Coinbase if you aren't optimistic about cryptocurrency in general. The million-dollar question facing those who are is this: To what extent will Coinbase become the JPMorgan Chase of the crypto economy?
Given Coinbase's transparency as a public U.S. corporation, its deep pockets, and its increasing nonexchange offerings, it seems like a promising bet on a future where crypto is a part of mainstream everyday finance.
