Coinbase Stock: Worth Investing Or Not?

Coinbase is a major U.S.-based cryptocurrency exchange that went public in 2021, marking a milestone in the world of cryptocurrencies as the first pure-play crypto trading company to list on a U.S. exchange. Coinbase stock gives investors exposure to the cryptocurrency market without directly investing in cryptocurrency. Coinbase shares can be bought and sold on the Nasdaq exchange under the ticker symbol COIN. However, it is important to note that Coinbase stock is subject to extreme volatility due to its dependence on the performance of the crypto markets.

Coinbase's IPO

Coinbase Global Inc. (NASDAQ: COIN) is the best-known US-based cryptocurrency exchange, with 56 million users across 100 countries and $1.3 billion in revenue in 2020. Coinbase's stock offering, scheduled for April 14, 2021, will be the first big crypto company to have a US stock offering.

Coinbase has chosen to go public via a direct listing, a relatively new option for companies. In a direct listing, there is no pre-set price decided by investment bankers; instead, the market on the initial trading day influences the starting price. On the day of initial trading, there is a 10-minute "display only" period in which interested buyers enter their bids, and sellers (Coinbase's existing shareholders) enter their offers. Direct listings do not raise new capital, but they make it easier for a company to raise capital going forward.

Coinbase's impressive growth and profitability may tempt many to buy shares on the first day of trading. However, buying a stock on its debut rarely works out for retail investors due to the steep premium for buying early. Coinbase's stock is also tied to the volatile crypto markets, so it may not be a stable investment.

One commentator, however, notes that they would rather invest in Coinbase than in crypto directly because it is a productive asset and a real business that makes transaction revenue.

Coinbase vs. buying Bitcoin

Coinbase is a cryptocurrency exchange that allows users to buy, sell, and trade cryptocurrencies. Coinbase is a much simpler platform than its competitors, with a far less complicated trading dashboard. This simplicity makes it a better option for people new to cryptocurrency. Coinbase offers access to more than 150 cryptocurrencies, including all of the top coins except for Binance Coin (BNB) and XRP. The platform has a maker-taker fee structure, with a tiered system for how maker/taker fees are charged. For instance, a pricing tier of $0 to $10,000 on Coinbase is associated with a 0.6% taker and 0.4% maker fee.

On the other hand, Bitcoin is a decentralised cryptocurrency that can be bought and sold on exchanges such as Coinbase. Bitcoin is a peer-to-peer system that allows users to send and receive funds without the need for intermediaries like banks or financial institutions. Bitcoin is also characterised by its limited supply, with a maximum of 21 million bitcoins that can ever be created.

When considering whether to invest in Coinbase stock or Bitcoin, there are several factors to consider. Coinbase is a more established company with a strong brand and a large user base. It is also profitable, which is attractive to investors. However, as Coinbase is tied to the crypto markets, its stock price is likely to be highly volatile.

Bitcoin, on the other hand, is a more established cryptocurrency with a longer track record. It has seen significant growth over the years, with its price increasing by about 450% in the six months leading up to April 2021. However, Bitcoin is also known for its high volatility, with nasty bear markets tending to follow crazy bull markets.

In terms of accessibility, Coinbase is available in 49 states, plus Canada, the UK, Germany, India, Italy, France, and Spain. Bitcoin, being a cryptocurrency, is generally accessible to anyone with an internet connection, depending on local regulations.

In summary, Coinbase is a more established company with a simple and user-friendly platform, making it a good option for those new to cryptocurrency. However, its stock price is likely to be volatile as it is tied to the crypto markets. Bitcoin is a well-known cryptocurrency with a limited supply and a long track record, but it is also highly volatile. Ultimately, the decision to invest in Coinbase stock or Bitcoin depends on your risk tolerance, investment goals, and level of comfort with cryptocurrencies.

Coinbase's valuation

Coinbase, the well-known cryptocurrency exchange platform, has been valued at different levels by analysts and experts. In 2021, prior to its IPO, Coinbase was valued at around $68 billion, with shares selling in the private market for between $200 and $375. When Coinbase went public in April 2021, its shares were predicted to trade between $300 and $350, suggesting a valuation of about $100 billion. This high valuation made it the highest-valued financial exchange in the world at the time.

However, some experts have expressed concerns about Coinbase's rich valuation. One analyst from a Fool Live video clip mentioned that Coinbase shares were selling at a valuation of over $100 billion in the secondary market, which is higher than other major financial exchanges. This high valuation might be due to the company being valued as if it will have a monopoly in the cryptocurrency exchange space, while in reality, there are other significant players in the market.

Coinbase's revenue and user base have been growing rapidly. Between 2019 and 2020, its revenue increased from $533.7 million to nearly $1.3 billion, and it finally turned a profit in 2020, with a net income of $409 million. The number of Coinbase users has also been increasing, with a fivefold growth between 2015 and 2017 and a near doubling to 56 million users in the following two years.

Despite these positive signs, Coinbase's stock is considered by some to be overvalued. One analysis from Alpha Spread suggests that compared to its intrinsic value of $105.32 per share, the market price of $244.38 represents a 57% overvaluation. Additionally, Coinbase's stock is expected to be highly volatile due to its close connection to the crypto markets, which are known for their boom-and-bust cycles.

In summary, Coinbase's valuation has been a topic of debate, with some analysts considering it overvalued and others predicting further growth. The company's strong brand, rapid user and revenue growth, and position in the cryptocurrency market have attracted investor interest. However, the rich valuation and potential volatility associated with the crypto markets are factors that investors should carefully consider when making investment decisions regarding Coinbase stock.

Coinbase's revenue and income

Coinbase's revenue took a leap in the first quarter of 2021, reaching $1.8 billion, an increase of 842% from the same quarter in the previous year. This surge in revenue coincided with a skyrocketing increase in the price of Bitcoin, which peaked at $40,027 on February 19, 2021.

However, in 2022, Coinbase's revenue took a hit, declining to $2.9 billion, a 6.4% drop from the previous year. This decline was attributed to a heavy drop in the value of Bitcoin and other cryptocurrencies.

Coinbase's revenue is closely tied to the performance of Bitcoin and the broader cryptocurrency market. As of late 2023, Coinbase's net revenue started to grow again, fuelled by the increasing hype around Bitcoin ETFs and the rising price of Bitcoin.

Transaction fees are the primary source of Coinbase's revenue, constituting over 96% of the company's net revenue as of late 2020. The company also generates revenue from other services, such as custody and staking fees. Coinbase has attracted a substantial user base, reporting 105 million registered users in 2023, with 9.5 million people actively exchanging cryptocurrencies each month.

Coinbase's future

Coinbase's revenue is highly dependent on the volatility in crypto markets. The company makes most of its money from transaction fees, so when crypto values rise, customers are more inclined to trade, and vice versa. This makes it difficult to predict the company's financial results. Coinbase's prospects are not tied to any one particular cryptocurrency, however. For example, in Q3, 19% of its trading volume was from Bitcoin, 22% from Ethereum, and the rest from other crypto assets.

Coinbase has been growing rapidly. It has 56 million users across 100 countries and reported $1.3 billion in revenue in 2020. It has also been attracting more institutional customers, which now number more than 7,000. Coinbase's user base nearly doubled from less than 30 million to 56 million in the past two years.

Coinbase is already an important partner for institutional clients looking to gain access to the crypto market. With the introduction of Coinbase Cloud, a tool for developers to build applications and services on its infrastructure, the company has the potential to be the Amazon Web Services of crypto.

However, Coinbase's share price has trended lower since its IPO, and the cryptocurrency market has been battered lately. Coinbase's stock has been quite volatile, and the company's fortunes will rise and fall with the crypto markets.

If you believe in the future of cryptocurrencies, then Coinbase makes a great addition to a well-diversified portfolio.

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