Research Report: Coinbase (COIN)
Coinbase Global, Inc. (NASDAQ: COIN) is one of the largest and most well-known cryptocurrency exchanges globally. The company provides a platform for buying, selling and storing various cryptocurrencies. Since its founding, Coinbase has grown to become a leading player in the crypto market, capitalizing on the increasing adoption of digital assets.
Market Position and Growth
Coinbase is the leading U.S. cryptocurrency exchange by trading volume, and its market presence continues to expand. The company has reported significant financial milestones, with record revenues of $7.83 billion in 2021, a stark increase from $1.27 billion in 2020 and $533.7 million in 2019. Despite a drop in revenues to $3.19 billion in the following year, Coinbase has shown resilience and adaptability in the volatile crypto market.
“At Coinbase, our first priority is to ensure that we operate the most secure and compliant digital currency exchange in the world.”
— Brian Armstrong, Coinbase CEO
Key Reasons for Investment
Market Leadership and Expansion:
Coinbase is expanding its global footprint, having entered markets like Canada and Spain, which enhances its reach and potential user base. The firm’s active pursuit of global expansion positions it well to capture new markets and increase its revenue streams.
Revenue Diversification:
While Coinbase primarily generates revenue from trading fees and commissions, it has diversified its income streams. Subscription and services revenue, particularly from interest on USDC reserves, has grown, providing a more stable revenue base amid market fluctuations.
Bitcoin Halving and Market Dynamics:
The recent Bitcoin ETF launches in January 2024, coupled with the Bitcoin halving in April 2024 is expected to drive significant market activity. Historically, such market worthy events have led to substantial increases in Bitcoin prices, which in turn boosts trading volumes and Coinbase’s revenues. The Bitcoin halving approximately every four years, is a cyclical event that positions Coinbase to benefit from increased trading activity and market interest.
Robust Financial Performance:
Despite market volatility, Coinbase has shown strong financial performance. In Q3 2023, the company exceeded expectations with sales reaching $674 million and narrowing its net loss to $2.3 million.
Q4 2024 numbers are even more impressive:
1. Revenue: $1.64b (up 122% from 1Q 2023).
2. Net income: $1.18b (up from $78.9m loss in 1Q 2023).
3. Profit margin: 72% (up from net loss in 1Q 2023). The move to profitability was primarily driven by higher revenue.
4. EPS: $4.85 (up from $0.34 loss in 1Q 2023).
Technological Leadership and Security:
Coinbase’s focus on security and compliance has earned it the trust of investors and users alike. The platform’s robust security measures and regulatory adherence provide a competitive edge in the cryptocurrency space, attracting institutional and retail investors.
Effective expense management and strategic initiatives have strengthened its financial stability.
Potential Risks
While Coinbase has a strong growth trajectory, potential risks are inherent with the cryptocurrency market. Regulatory challenges, market volatility and competition are significant factors that can impact the company’s performance. Additionally, the reliance on trading volumes means that bear markets can significantly reduce revenue.
Our View
Coinbase stands out as a compelling investment due to its market leadership, strategic expansion, diversified revenue streams, and strong financial performance. As one of the top exchanges in the world, the company is well-positioned to capitalize on the growing adoption of cryptocurrencies.
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Fun Note: We first started using Coinbase in 2013 when it listed only 3 cryptocurrencies: Bitcoin, Etherum and Litecoin. Coinbase now lists 248 cryptocurrencies as of mid 2024.