Coinbase, the U.S.’s largest cryptocurrency exchange, has seen its stock prices drop by more than 30% since mid-April’s IPO. It trades at $225 per share and is now trading at around $225. Two main factors drove the sell-off. First, Bitcoin’s bellwether currency dropped from $62,000 in mid-April to $33,000 on Wednesday. This is affecting sentiment around Coinbase stock. Coinbase was also made public by a direct listing. This allows early investors to sell shares immediately without waiting for the IPO lockup period. This likely increased stock pressure. Is the latest correction a good entry point into Coinbase stock? We believe it.
Coinbase is the market leader for cryptocurrency and can become one of the most disruptive technologies in our time. Coinbase offers a variety of services for institutional and retail customers. It has an excellent reputation for transparency, security and compliance. This could make it the preferred platform as other cryptos gain popularity. Coinbase is not a futuristic stock. Coinbase already makes profits, and they are huge. According to our projections, sales will grow 4x to nearly $6 billion by 2021. Net profits could reach a staggering $2 billion this year. Investors should be prepared for some volatility as crypto prices fluctuate over time (two to four years per Coinbase).
However, the company is trying to stabilize its revenues by doubling down on providing blockchain infrastructure through the recent acquisition of Bison Trails. The stock is attractive at the current price of $225 per share and trading at about 10x expected 2021 revenues. Coinbase is valued at $295 per share. This price is 30% higher than the market. Check out our analysis.
What Has Coinbase Doing in Previous Bitcoin Bear Markets
Coinbase was a major beneficiary of the cryptocurrency boom. Its revenues rose 9x year-over-year to $1.8 billion in Q1, as more users came to its platform to cash out on the soaring prices. But cryptocurrencies are now in a bearish market. The prices for the bellwether cryptocurrency Bitcoin fell from $62,000 mid-April when Coinbase went public to $35,000 by Sunday. While prices have stabilized somewhat since falling to $32,000 last week, they are still a reminder of the volatility in the crypto market. How will this affect Coinbase’s future performance?
Coinbase’s revenue is highly sensitive to cryptocurrency prices since they impact the number of users who transact monthly and the total transaction value. Users will become less active, and transaction revenue will decline as prices fall. To put it in perspective, Coinbase’s MTUs dropped by 70% in the crypto bear market of 2018, when Bitcoin prices plummeted by more than 80%. [1] Coinbase also saw its trading volumes drop from $56 billion Q1’18 to $7 billion Q1’19, a staggering 87% decrease. We could see Coinbase’s margins and revenues shrinking in the next quarter if the bear market in Bitcoin persists. We believe that some cyclicality has already been priced into Coinbase stock, which is still down by more than 30% since April 14.Interactive analysis
Coinbase Revenues: How does COIN make money? This overview provides a snapshot of Coinbase’s business model, key revenue streams, and key financial information.
Coinbase Stock: What’s the Deal?
Since its public listing on April 14, Coinbase stock (NASDAQ: COIN) has fallen from $328 per share at the time to $281 today. What’s the reason for this sell-off?
First, Coinbase was listed via a direct listing. This allows insiders to immediately sell shares without waiting for the usual post-IPO lockup period, limiting the initial supply. This could put pressure on Coinbase stock price. Similar trends were also observed last year with Asana, a workplace management software company, and Palantir Technologies big data player, who went public via direct listings. Both companies saw their stock prices decline or move sideways for a few months after their IPOs.
Second, Bitcoin’s price, the most important cryptocurrency, has fallen by nearly 15% since Coinbase was made public. Coinbase’s revenue is highly sensitive to cryptocurrency prices since they impact both the number of users who transact monthly and the total transaction value. Coinbase’s profitability and revenue could be affected if prices continue to trend lower.
There are also concerns that Coinbase’s transaction charges, which make up over 80% of its revenue, will be under pressure from rising competition. Coinbase charges retailers a spread of approximately 0.50% for transactions and another fee of between 1.5% to 4%, depending upon how they fund their trades. Robinhood, on the other hand, offers commission-free cryptocurrency investing through its app. Square and PayPal also offer lower fees than Coinbase in certain scenarios. The crypto markets are still very much in their early stages, and many new players will be entering the market. This could potentially lower transaction fees and profit margins at Coinbase. Interactive analysis
Coinbase Revenues: How does COIN make money? This overview provides a snapshot of Coinbase’s business model, key revenue streams, and key financial information.
Coinbase Can Handle a Crypto Bear Market
Since Coinbase stock went public last week, it has been a bumpy ride. The stock opened at $328 per share on its listing day. However, it has been trending lower to $293 per share by yesterday. The decline can partly be attributed to Coinbase’s direct, allowing insiders to immediately sell shares without the usual post IPO lockup period. However, Coinbase’s platform allows customers to purchase and sell cryptocurrencies. Bitcoin, the largest crypto asset in terms of market capitalization, has fallen by nearly 20% since Coinbase went public. Can Coinbase’s stock withstand a crypto bear market?
Coinbase makes about 90% of its revenues from transaction revenues. These revenues are sensitive to the price trend for cryptocurrencies, particularly bellwether Bitcoin. This affects the number of users who transact monthly on Coinbase and the total transaction value. The company’s quarterly trading volume soared to $335 billion as Bitcoin prices increased by roughly two-thirds in Q1. This is more than the combined trading volumes for 2019 and 2020. If prices drop, MTUs will fall, and transaction volumes will decrease on the platform, hurting Coinbase.
There are a few factors that have an impact on Bitcoin prices. First, the U.S. is seeing an increase in Covid-19 vaccinations and the economy opening up more, so investors may be shifting funds from speculative cryptos towards real-economy assets. There have been reports that the Biden administration is planning to increase the capital gains tax for the richest Americans to 39.6%, from 20% currently. This could harm cryptocurrencies which have seen a huge rally over the past year. We believe that Coinbase stock is currently priced at current levels due to the inherent cyclicality of crypto prices and transaction revenue. The stock trades at about 11x forward revenue, despite the fact it has experienced revenue growth of 139% last year. This year’s expected acceleration is even greater.
Interactive analysis how does COIN make money? This overview provides a snapshot of Coinbase’s business model, key revenue streams, and key financial information.
Coinbase: How does it make money?
Coinbase, the U.S.’s largest cryptocurrency exchange, will be listed on the Nasdaq exchange under the ticker COIN on April 14. Investors expect valuations to exceed $100 billion, despite not knowing the listing price, due to the high interest in cryptocurrency and the company’s impressive earnings for Q1 2021. Our interactive dashboardCoinbase Revenues: How does COIN make money? We provide an overview of Coinbase’s business model, key revenue streams, and other details. Below are parts of the analysis.
The Business Model of Coinbase
Coinbase’s platform allows institutional and retail customers to store, buy, and sell cryptocurrencies like Bitcoin and Ethereum. Customers are primarily reached via Coinbase, Coinbase Pro and Coinbase Wallet apps, and its websites. As of Q1 2021, Coinbase had 56 million total retail users. As of 2020, roughly 90% of the company’s revenue came from transaction fees for trading and via services like storage and analytics. Coinbase charges transaction fees to its customers (estimated at 0.5%) depending on how many trades they make. Larger trades receive lower fees. Due to the high transaction costs of Bitcoin and other cryptos, Coinbase’s commissions is higher than traditional exchanges. The company makes about 10% of its revenues from selling crypto assets to customers.
What has been the trend in revenue?
The pricing trend for a cryptocurrency (especially bellwether Bitcoin) is a major factor in the company’s transaction revenue. This directly impacts the total transaction value and the monthly number of users who transact on the platform. Additionally, higher price volatility for crypto assets can help revenues. The company’s total revenue increased from $534 million to $1.28billion in 2020. This was due to an increase in monthly trading users from about 1,000,000 to a 2.8million over the same period. Total trading volumes also rose from $80 billion to $193billion. The company enjoyed a great Q1 2021. Its estimated revenues grew to $1.8 billion. Trading volume for the quarter rose to $335 billion. This was due to Bitcoin’s almost two-fold increase in price. This caused the active monthly traders to jump from 2.8 million to 6.1 million last year. It is unlikely that the company will maintain its Q1 growth rates in 2021 due to the volatility of the crypto market. The crypto market is vulnerable to corrections due to rising bond yields, a strong 8x run in Bitcoin price and other factors.
