Valued at $18.45 billion by market cap, Coinbase Global (COIN) is among the largest cryptocurrency exchanges in the world. Coinbase went public in 2021, and currently trades 79% below all-time highs.
However, COIN has staged a remarkable comeback year-to-date, rising 114% in the first 10 months of 2023 - with recent gains fueled by fresh regulatory optimism for cryptocurrencies.
Meanwhile, with none other than fund manager Cathie Wood taking advantage of the recent rally to unload her shares, let’s see whether Coinbase stock is worth buying on the latest headlines.
Coinbase Stock Lags Bitcoin's Price Surge
The performance of Coinbase is closely tied to key cryptocurrency asset prices, such as Bitcoin (BTCUSD) and Ethereum (ETHUSD), which account for a majority of the exchange's trading volumes. Generally, trading volumes are higher in a bull market, allowing Coinbase to benefit from higher fees and commissions. Alternatively, volumes drop when sentiment turns bearish, resulting in lower revenue.
For instance, Coinbase increased sales from $533.7 million in 2019 to $7.83 billion in 2021 as cryptocurrency prices exploded higher. But in the last 12 months, its sales have fallen to $2.7 billion, with Bitcoin currently trading about 50% below all-time highs.
A key driver for the recent rally to 18-month highs in Bitcoin is investor optimism over the potential approval of a spot Bitcoin ETF. The long-awaited approval of Grayscale's fund could clear the way for more listings from large asset management companies, including BlackRock (BLK) and Invesco (IVZ) - which potentially opens the floodgates for billions more investor dollars to pour into the sector.
However, investors should note that COIN is hardly a perfect proxy for Bitcoin prices, despite its dependence on the volatile market. Over the last three months, COIN is down 24%, while BTC is up 15%. And in the last month alone, COIN's 7% gain significantly lags a nearly 30% rise in BTC.
Coinbase Stock: Looking Beyond Bitcoin
To its credit, Coinbase has expanded its portfolio of products and solutions over the past two years, enabling it to expand its ecosystem significantly and reduce its dependency on volatile crypto trading volumes. For instance, in 2021, the company’s transaction revenue accounted for 87% of sales. In Q2 of 2023, transaction sales accounted for less than 50% of total revenue.
In particular, Coinbase is banking on its subscription and services business to gain traction. This segment includes products such as interest income, custodial fees, staking, and blockchain rewards. Revenue in its subscription and services business grew from just $45 million in 2020 to $792 million in 2023. In Q2, subscription sales more than doubled to $335.4 million.
But for Coinbase to remain a solid long-term investment option, Bitcoin will have to gain widespread adoption globally. Bitcoin was built to replace fiat currencies and facilitate global transactions at a low cost. However, the lack of regulatory clarity has remained a significant headwind - which is why crypto-related investments reacted so strongly to recent indications of a potential SEC victory.
Analysts Call COIN a Hold
Coinbase enjoys a first-mover advantage and is forecast to end 2023 with sales of $2.78 billion, while adjusted earnings are forecast at $1.73 per share. That said, COIN trades at 6.7x forward sales, which is quite steep for an unprofitable company that's projected to report steeper losses into the next fiscal year.
Out of the 22 analysts covering Coinbase stock, the average recommendation is a “hold.” Six recommend “strong buy,” one recommends “moderate buy,” eight recommend “hold,” two recommend “moderate sell,” and five recommend “strong sell.” The average target price for COIN is $83.84, which is 12.5% above the current trading price.
