Bitcoin's (BTC -0.22%) price more than doubled over the past 12 months as the approvals of its first spot price ETFs, the halving of its mining rewards, and stabilizing interest rates all brought back the bulls. The easiest way to profit from Bitcoin's recovery was to simply buy the cryptocurrency or invest in one of the new ETFs.
However, Bitcoin's rally also lit a fire under stocks like Coinbase (COIN 4.23%), one of the world's top cryptocurrency exchanges, and MicroStrategy (MSTR 10.04%), an aging enterprise software company that started hoarding Bitcoin in 2020. Over the past 12 months, Coinbase's stock has rallied more than 280% and MicroStrategy's stock over 270%. Let's see which of these hot crypto stocks is a better buy right now.
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Coinbase's business is finally stabilizing
Coinbase generates most of its revenue from transaction fees, so its growth is tightly tethered to the broader cryptocurrency market. In 2023, it generated 34% of its trading volume from Bitcoin, 20% from Ether (ETH 0.15%), and 11% from its stablecoins. The remaining 35% came from smaller altcoins and other crypto assets.
Coinbase's revenue soared 514% in 2021 as stimulus checks, social media buzz, and a fear of missing out (FOMO) drove more investors into the cryptocurrency market. However, its revenue fell 59% in 2022 as rising rates popped that speculative bubble.
Its revenue declined another 3% in 2023 as the "crypto winter" chilled its business. But in the fourth quarter of 2023 and the first quarter of 2024, its trading volume and total revenue increased sequentially again. That stabilization was largely driven by the aforementioned tailwinds for Bitcoin and other cryptocurrencies.
Coinbase also continued to grow as several of its largest competitors were derailed by regulatory challenges, and it became the primary custodian for most of the market's new Bitcoin spot price ETFs. Analysts expect its revenue to rise 80% for the full year.
Coinbase's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also turned positive again in 2023 as it aggressively cut costs. Analysts expect its adjusted EBITDA margin to rise from 31% in 2023 to 49% in 2024 as the crypto winter finally ends. Based on those expectations, Coinbase's stock still looks reasonably valued at 19 times this year's adjusted EBITDA.
MicroStrategy is still going all in on Bitcoin
MicroStrategy's core software business mainly sells data analytics software for big enterprise customers. Over the past decade, it has faced intense competition from cloud-based analytics companies like Salesforce, diversified cloud infrastructure platforms like Amazon Web Services (AWS) and Microsoft Azure, and smaller business intelligence companies.
MicroStrategy gradually expanded its subscription-based services to offset its declining license and support revenues. But that process was sluggish, and the company unexpectedly shifted gears in August 2020 by purchasing $250 million in Bitcoins. By the end of the first quarter of 2024, it had spent $7.54 billion on buying 214,400 Bitcoins at an average cost of $35,180 per Bitcoin.
As of this writing, MicroStrategy's Bitcoin holdings are now worth $13.8 billion -- which is more than half of its enterprise value of $25.3 billion.
The bulls believe MicroStrategy's Bitcoin-hoarding strategy will turn it into a much larger company even if the growth of its core business stalls out. Yet analysts still expect the company's revenue to dip about 1% this year as it struggles to sell more software.
The company is also taking on more debt to fund its Bitcoin purchases, and analysts expect it to turn unprofitable again on a generally accepted accounting principles (GAAP) basis this year as it racks up more impairment costs from its Bitcoin buys. Analysts expect its adjusted EBITDA to grow 8% this year -- but its stock looks expensive at 277 times that estimate.
The obvious winner: Coinbase
Coinbase will remain a linchpin and bellwether of the growing cryptocurrency market, while MicroStrategy is simply a slow-growth software company that is betting the farm on Bitcoin. Coinbase is also growing faster and trades at lower valuations than MicroStrategy. Both stocks might continue to rise as the crypto market recovers, but Coinbase is clearly a more promising long-term investment than MicroStrategy right now.
