As has been the case for all recent cryptocurrency-related events, the Coinbase (COIN) initial public offering garnered significant investor attention. Coinbase’s platform facilitates cryptocurrency buying, selling, and storage.
On listing, COIN stock surged to a high of $429. This has been followed by some profit taking, and the stock currently trades at around $300. It seems that Coinbase is attractive for long-term exposure considering the wider adoption of cryptocurrencies. Company specific fundamentals also point to the stock trending higher.
Which Factors Make Coinbase A Stand-Out?
A recent report by Crypto.com suggests that the total number of global crypto users has reached 106 million as of January 2021. Six months back, the number of crypto users was 74 million. As such, cryptocurrency adoption seems to be at an inflection point.
Specific to Coinbase, the number of users has been steadily climbing. The company reported verified users of 32 million for FY2019. Last year, the number of verified users increased to 43 million. What’s more, for the first quarter of 2021, verified users have increased to 56 million.
Of course, transacting users are more important from a revenue perspective than verified users. In December 2019, the company reported 1 million transacting users. As of March 2021, transacting users swelled to 6.1 million; in 15 months, the number of transacting users has increased sixfold. A vast base of verified users is likely to ensure that transacting user growth remains strong.
These are all positive trends and are likely to translate to stock upside. (See Coinbase stock analysis on TipRanks)
Strong Growth And Margins
With an increase in transacting users, Coinbase has reported strong top-line growth.
For FY2020, the company reported revenue growth of 139.3% to $1.3 billion. For the same period, the company reported EBITDA growth of a whopping 2,095.8% to $527 million. This implied a healthy EBITDA margin of 41.3%.
For the current year, the company has guided for revenue of $1.8 billion and adjusted EBITDA of $1.1 billion. This would imply an EBITDA margin of 61.1%. Therefore, revenue growth is likely to be tied to significant expansion of key margins.
Further, for FY2020, the company reported operating cash flow of $294 million (excluding impact of change in custodial funds due to customers). With strong top-line growth coupled with EBITDA margin expansion, OCF is likely to surge in the next few years. This would also imply healthy free cash flows.
Coinbase reported cash and equivalents of $1 billion as of December 2020. With the IPO proceeds, the company has an ample financial buffer to accelerate sales and marketing efforts. This is likely to result in user growth and sustained top-line growth.
On top of this, the company has witnessed a steady growth in market share. As of Q1 2021, the total assets on the company’s platform were $223 billion, representing 11.3% of the crypto asset market. In FY2018, the company’s crypto asset market share was 4.5%.
From a growth perspective, it should be noted that in FY2019, Bitcoin and Ethereum accounted for 72% of the trading volume. In FY2020, the trading volume concentration for these two assets declined to 56%. With Coinbase supporting an increasing number of assets, its trading volume will correlate less with the price fluctuations of Bitcoin, and it is also likely to attract new users.
Wall Street’s Take
Turning to the analyst community, 5 Buys and 2 Holds have been assigned in the past three months. So, Coinbase is a Moderate Buy. At $447, the average analyst price target implies 50.18% upside potential.
Coinbase currently has a market capitalization of $59 billion. Considering the FY2021 revenue guidance of $1.8 billion, COIN stock trades at 32 times forward revenue, which might seem expensive.
However, it is worth noting that top-line and cash flow growth is likely to remain strong for the coming years. Even if top-line growth is around 30% to 40% over the next few years, with a healthy EBITDA margin, the business will deliver strong free cash flows.
The stock, therefore, seems attractive, considering the long-term growth potential. If Bitcoin and cryptocurrency adoption continue to accelerate at the current pace, it might just be the beginning of the growth story for Coinbase.
Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.