Coinbase was one of the most highly anticipated IPO’s on the NASDAQ in 2021. The company has over $180billion of assets on the platform and over 68 million users worldwide. So we take a look to see Should I Buy Coinbase Stock 2021?

Earlier in the year we also wrote an article stacking up two of the hottest fintech IPO’s of the year and put COIN and Hood head to head to see which was the more promising IPO.

Should I Buy Coinbase Stock – About

Coinbase is one of the go-to platforms for people wanting to invest in crypto the easy way. Coinbase was one of the first platforms to make cryptocurrencies easy for people to buy and sell.

The previous method prior to Coinbase involved terminal commands and remembering lengthy codes. A slide from one of the companies pitch decks illustrates this perfectly.

Should I Buy Coinbase Stock
Buying Crypto before the launch of Coinbase in 2012.

Coinbase Stock Price

Coinbase is listed on the NASDAQ under the ticker symbol COIN (COIN:NASDAQ) and currently trades on a market capitalisation of US$51.26 billion with a stock price of $243.

The company has a 52-week range of $208 – $428 per share and at the current price is sitting just 15% above the 52-week low.

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Coinbase IPO Price

What was the Coinbase IPO Price? Coinbase completed its direct listing on the NASDAQ with a reference price of $250 when it IPO’d back in April 2021.

What date did coinbase IPO? Coinbase IPO’d on April 14 opening at $381 before briefly topping $400. 

Coinbase Latest Financial Report

COIN released the companies latest financial report to the market on 10 August 2021 titled 2Q21 results announcement.

2Q21 - Coinbase Basic Financials
2Q21 – Coinbase Basic Financials

The group in the quarter generated over $2.0 billion in net revenue, including $1.9 billion in transaction revenue and over $100million in subscription and services-based revenue. Net income for the quarter was $1.6 billion and Adjusted EBITDA was $1.1 billion.

As volatility and crypto asset prices are highly correlated with trading
revenue, the crypto market environment heavily influenced our Q2 financial results.

Coinbase Q2 FY21 Report

The above quote from the group seems to indicate that a period of volatility also means that trading volumes will be higher, it is assumed that the group means both highs and lows in the underlying crypto’s encourage users to trade more often.

In the groups, 2Q21 report to the market Coinbase points out that As of March 31, 2021, Assets on Platform totalled $223 billion, representing 11.3% of the total market capitalization of crypto assets.

Number of Blockchain Wallet Holders Worldwide
Number of Blockchain Wallet Holders Worldwide

If crypto prices continue to rise and adoption becomes mainstream 11.3% of the TAM is a massive achievement for the company. From the above you can see the total number of blockchain wallet holders has substantially increased in recent years.

As the industry develops over time, we expect this to increase as Institutional companies will start committing more of their funds into crypto. We are only really at the tip of the iceberg when it comes to institutional participation in crypto.  

Coinbase Income Statement 2Q21

Coinbase has increased its key metrics from revenue, gross profit and net income across the board since releasing its first set of quarterly results in June 2020.

The AGR on Coinbase Income is over 4000% since their first set of quarterlies, whilst we can’t see this continuing we see no reason why income cannot grow at large double-digit multiples until at least 2023.

Coinbase Historical Income Statement Per Quarter.
Coinbase Historical Income Statement Per Quarter.

Coinbase Analyst Consensus Estimates

Coinbase in their 2Q21 earnings report smashed consensus estimates EPS by 175% with analysts expecting earnings of 2.33 per share and COIN reporting 6.42 per share.

Q321 earnings consensus is lower than 2Q21 due to the perceived slowdown in crypto volume by analysts at $1.37 per share. However, we believe COIN is being significantly undervalued by this target and the result should be similar to 2Q21.

Is Coinbase Reliant on Bitcoin?

In group financial reports the dependence on trading volume in relation to Bitcoin has decreased over time with trading volume in other crypto-assets now higher than Bitcoin. Interestingly Ethereum Trading volumes as of 2Q21 have now also outstripped BTC, this is potentially due to the higher volatility of the crypto.

Coinbase Trading Volume
Coinbase Trading Volume Per Crypto Asset

It seems that the risk of the company relying purely on BTC trading volume is debunked and seemingly the trend towards “Other” coins may continue for some time.

According to the 2Q21 report, users had $47billion dollars of Bitcoin held on the platform. At the time of writing the market cap of BTC is around $880billion which means that 5% of the world’s bitcoin is held on COIN’s platform.

Coinbase and Institutional Investment

Coinbase In the group 2Q21 report to the market mentions that they are continually focussed on bringing institutional companies into the crypto fold. According to the Earnings call transcript, the group has 10% of the world’s top 100 hedge funds by Assets Under Management on the platform, who are clients of COIN and are actively engaging with the platform.

CEO Brian Armstrong also points out that similar to a few years ago when MTU’s (monthly transacting users) were joining the platform now, more and more hedge funds are starting to make allocations into the crypto-economy.

Coinbase is also very confident in their investment into Coinbase Cloud, which opens up the platform for developers to transact on top of the Coinbase platform and build upon tools that are not easily replicated by other solutions. It’s worth remembering that Coinbase has had at least a 9-year head start to get things right compared to some of the newer entrants into the space in recent years.

Coinbase Cloud Allowing others to leverage upon the Coinbase platform
Coinbase Cloud In our opinion is the AWS of crypto

Coinbase cloud can essentially be thought of as the AWS of the crypto world where developers will leverage the cloud APIs in order to develop crypto solutions. This we believe will deliver a significant uplift in revenues in years to come as dev’s typically preferred to develop applications and use cases using established APIs as compared to building these from scratch time and time again. Think of it as ‘reinventing the wheel’ and no one really wants to do this.

Coinbase Cloud essentially means that Coinbase will grow with the evolution of the whole of the crypto industry as they intend to be deeply embedded into the whole lifecycle process. We see this as a massive catalyst for COIN in future years.

Coinbase Fundamentals

In the period June 2020 to June 2021 Coinbase generated USD$4.93billion in revenue with expenses of $3.2billion and Earnings of $1.8billion. The group has a current EPS of $16.69 and a PE ratio of 28.9x.

Coinbase Stock Fundamentals
Coinbase Stock Fundamentals

Coinbase Fundamentals Facts:

PE ratio (TTM)17.91
Price to Book (PB)13.80
Price to Sales10.4x
PEG Ratio0.99x
EPS (TTM)13.58
Dividend YieldN/A
Shares Outstanding204.73M
Coinbase Fundamentals

The company has a PE ratio of 17.91x and a price to sales ratio of 10.4x. The PE ratio of 17.91 sits below the average NASDAQ PE Ratio which is currently around 28x, the group P/S ratio, however, sits above the NASDAQ Average of ~5x

NASDAQ PE Ratio from 2006 - 2021
NASDAQ PE Ratio from 2006 – 2021

Coinbases have a PEG ratio of 0.99x which suggests that the stock is currently fairly priced or even undervalued.

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As a general rule, a PEG ratio of 1.0 or lower suggests a stock is fairly priced or even undervalued. A PEG ratio above 1.0 suggests a stock is overvalued. 

Does Coinbase Pay a Dividend? Coinbase does not currently pay a dividend. In the companies, 2Q21 earnings call transcript the company mentioned they have no intention of any near-term return of capital to shareholders in the form of
a dividend or share repurchase

COIN Stock Valuation

Basic DCF Calculation

Valuing COIN Stock by a Discounted Cash flow based on the group free cash flow and an 8% discount rate yields substantial results.

Our predicted valuation is at the low range of $250 per share, however at the higher range of $487 per share over the medium term. However, we believe this is not the most applicable valuation method for COIN Stock!

Peer Comparison

In terms of peer comparison, the most appropriate companies to compare against in our opinion are Square and PayPal.

Market Cap51.72B117.59B324.71B
Revenue (TTM)4.406B15.93B 23.85B
Gross Margin 84.94%24.38%56.83%
EPS (TTM)13.581.11 4.10

Square and PayPal currently trade on P/E ratio’s of 249x and 67x respectively. COIN stock for comparison is trading on a P/E of 17.91x. Coinbase Stock is also trading at a similar P/S ratio, however, generating significantly more EPS than SQ or PYPL.

Coinbase also generates significantly higher earnings than Square from a much smaller revenue base (higher gross profit). COIN stock also has the lowest debt to equity ratio of the two companies.

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Coinbase Stock Competitors

Coinbase has a number of competitors internationally:

  • Coinbase
  • Binance
  • Robinhood
  • Blockchain
  • Bitrex
  • Bitfinex

Coinbase has no publicly listed competitors in which to compare their valuations other than Robinhood (however these companies are also generating revenues in significantly different ways).

Interestingly enough, although Binance is not a publically listed company we can obtain data through the companies ‘burning’ of their BNB token.

Outlined in the original Binance Coin whitepaper, the company pledged to burn BNB tokens equal to 20% of its quarterly profits. With BNB tokens valued at $390 million burned this quarter, Binance should have made close to $2 billion in profit since April.

We see an advantage in COIN Stock being the only publicly listed company on the list with a focus directly on crypto. Our reasoning for this is around institutional and high net wealth individuals and the perception of trust in the company.

We see as more and more institutions look to invest in the crypto-economy they will seek stability and trust in whom they are conducting business with, as COIN Stock is publicly listed we believe this creates a higher perception of trust.

Check out our Coinbase Stock Vs Robinhood Stock for an in-depth comparison

Should I Buy Coin Stock – Key Business Risks

  1. Coinbase may not be able to trade every asset on our centralized exchange for regulatory reasons
  2. Erosion of the companies transaction revenue due to increased competition
  3. Declining interest in crypto-economy, however the reverse is also COIN Stocks key upsides.
  4. Hacking of the system

Coinbase has repeatedly mentioned in their earnings webcasts that they will not be competitive on transactional fee’s. Instead, the group intend to focus on providing the most secure and best service.

COIN’s focus on the security of the system will also provide additional surety around point 4.

Key Upside Opportunities

  • Increased growth of the crypto-economy as a whole (think of Google in the 2000’s, as the internet grew, so did google)
  • Subscription based revenues to continue growing at large rates
  • Release of NFT platform on Coinbase (Potentially buying OpenSea)
  • International Expansion into Japan and Germany (Flagged in Q2FY21)
  • Increased traction of Coinbase USDC (StableCoin)

We see any of the above not currently being priced in by investors.

Should I Buy Coinbase – Ownership Structure

Coinbase stock is owned predominantly by the General public at 40.9% with individual insiders and institutions taking up the next largest slices of the structure at 23.6% and 22.5% respectively.

Coinbase Stock Ownership Breakdown
Coinbase Stock Ownership Breakdown

The Insider ownership of the company is high for a company of their market capitalisation and sector.

17.12%Brian Armstrong36,102,191$8.8b
6.6%Andreessen Horowitz LLC13,914,829$3.4b
5.69%Ribbit Management Company, LLC11,995,949$2.9b
5.54%Frederick Ehrsam11,693,548$2.8b
2.66%ARK Investment Management LLC5,617,415$1.4b
2.44%The Vanguard Group, Inc.5,138,393$1.2b
1.86%Union Square Ventures, LLC3,924,059$953.5m
Coinbase Insider Ownership

CEO of Coinbase Brian Armstrong is the largest individual holder in COIN stock with 17.12% of the float. Co-Founder Fredrick Ehrsam also continues to hold large portions of Stock. Other notable holders include ARK Invest and the VC firm Andreessen Horowitz.

Should I Buy Coinbase – Insider Transactions

Coinbase Insiders have been selling down stock since the company IPO, however, the majority sold their shares very soon after the company went public.

Coinbase (COIN Stock) Chief Executive Brian Armstrong sold ~$292 million in shares during COIN Stock first day of trading.

DateValueNameEntitySharesMax Price
24 May 21-$2,253,027Kathryn HaunI10,000US$226.52
24 May 21-$3,960,295Andreessen Horowitz LLCC17,473US$230.95
22 Apr 21-$20,959,092Frederick EhrsamI70,685US$313.39
21 Apr 21-$43,161,756Frederick EhrsamI135,000US$328.61
19 Apr 21-$43,392,403Frederick EhrsamI129,500US$345.00
15 Apr 21-$1,750,000,050Union Square Ventures, LLCC4,500,000US$388.89
15 Apr 21-$75,366Frederick EhrsamI200US$376.83
Coinbase Recent Insider Transactions

Should I Buy Coinbase – Prophets Take

The only real negative we hear around the investment community is the risk of new participants into the space, however, we believe Coinbase is potentially 5-years ahead of any competition based on the below:

  1. Coinbase Cloud, allowing devs and users to intergrate and develop platform ontop of COIN’s ecosystem and hooking directly into the platforms API’s
  2. The trust of Institutions in Coinbase, as more and more institutions seek exposure to crypto assets, they will typically rely on the most trusted solution.
  3. As the only publicaly listed crypto company of this nature we believe institutions will be attracted to the perceived ‘security’ of COIN Stock over other competitors

Coinbase Stock has continued to generate significant growth in revenues and earnings over the past 8 quarters, with a significant turning point in the last year. We believe Coinbase Stock will continue to surprise the upside and see the potential for significant growth from institutional demand in the crypto-economy in the near term.

COIN Stock has spent over 7 years developing systems and overcoming challenges that the company now plans to commercialize through the use of the Coinbase Cloud Platform. We see this move as the Amazon of the crypto world and will provide the tools required for other companies to build products on top of.

We believe Coinbase stock is massively undervalued based on the below factors:

  1. Increased future demand from institutions looking to invest in the crypto-economy
  2. The groups Coinbase Cloud has not been priced in by investors
  3. Inevitable release of Crypto ETF’s by institutions will likely be powered through Coinbase
  4. We believe Coinbase will continue to beat short term analyst consensus targets
  5. Price to Sales multiple seems attractive compared to competitors based on forward FY21 annualized 2Q21 revenue.
  6. We believe analysts are valuing Coinbase in comparison to other traditional ‘stock’ brokers, however Coinbase is a full fledged financial platform and should be valued on higher multiples

We will continue to monitor Coinbase stock fundamentals for the metrics which have been listed in the report however over the coming quarters we really want to see continued retail demand, increased institutional development in crypto and large companies starting to build on top of the cloud platform.

Disclosure Prophet has Coinbase stock in their own portfolio. We believe this should trade on higher valuations such as Square and PayPal. Investors will take time to accept this and we will be buying in the meantime.

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