Should Investors Buy COIN Stock After A Big Market Debut?
Coinbase Global Inc. (NASDAQ: COIN) set records Wednesday with the largest-ever direct listing as the cryptocurrency exchange saw its valuation hit past $100 billion, then slipped back later in the day. The Nasdaq stock exchange initially set a reference price of $250 per share, but no trades were executed at that price.
Shares of Coinbase opened at $381 on the Nasdaq Market and rose as high as $429.54 in the first ten minutes of trading. However, Coinbase lost its upward momentum shortly after. COIN stock drifted steadily lower and eventually closed the session at $328.28. But amid all the great expectations, and with the stock closing below its debut price, many are starting to question if Coinbase’s highly anticipated IPO was really a success.
Those who bought the stock right out of the gate may be feeling a little disappointed. Many are even speculating that demand somehow wasn’t as strong as it could have been. But it’s important to note that this space is volatile. It’s part of the game and you know it. The company’s stock price is currently trading at $322.75 as of Thursday’s closing bell. If you did not invest in COIN stock IPO and are wondering if it might be a worthwhile investment, read on.
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Coinbase Stock Rated Buy With $600 Price Target at MoffettNathanson
Now, analyst Lisa Ellis is calling the stock a “must-own” for investors who have multi-year investment horizons. In detail, she derived her price target by applying a 20 times forward multiple to Coinbase’s projected 2023 revenues. Her calculation bakes in a 35% decline in crypto transactions for 2022 given its boom-and-bust cyclicality of the space.
The cryptocurrency exchange’s strengths in integrating security across multiple blockchains are what make it stand out. Besides, Coinbase has helped companies add bitcoins to their balance sheets, including Tesla (NASDAQ: TSLA) and MicroStrategy (NASDAQ: MSTR).
“We view Coinbase as a leading technology infrastructure provider for the cryptocurrency ecosystem, providing essential building blocks to facilitate the use of cryptocurrencies, including market-leading crypto storage and exchange capabilities,” MoffettNathanson analyst Lisa Ellis wrote in a commentary.
Cathie Wood Loads Up On COIN Stock
It’s not just some Wall Street analysts that are bullish on COIN stock. Even ARK Invest’s Cathie Wood demonstrated her conviction in the future of digital assets. In particular, her funds snapped up around $250 million worth of Coinbase shares in the public debut. Wood has been a fervent supporter of Tesla’s stock early on. With her reputation in picking disruptive stocks, could her interest in COIN stock signify bigger things to come?
Separately, on the same day, ARK Fintech Innovation sold 37,341 shares of Intercontinental Exchange Inc. (NYSE: ICE), the parent company of the New York Stock Exchange. Everybody knows Cathie Wood’s ability in stock picking. And you could expect meaningful success with most, if not all of her investments. Even though this is a small fraction of the total holdings, every little bit counts.
Coinbase Has Millions Of Verified Users On Its Platform
If anyone has been in the crypto space in the early stage, you might have come across some exchanges giving out free altcoins to induce more investors to trade on their platform. For those unfamiliar, altcoins refer to alternatives to Bitcoins. They are cryptocurrencies that utilize blockchain technology which allows secure peer-to-peer transactions. The reason for such giveaways is to attract more investors to trade on their platform. That will lead to increased revenue from a surge in trading activities. And since it is still a largely unregulated space, the transparency of these trading activities is questionable.
Coinbase, however, had 43 million verified users on its platform. As of December 31, 2020, Coinbase had 2.8 million monthly transaction users. That compares to 13,000 users back in 2012. The company has seen its user base explode over the years as cryptocurrency continues to gain interest from retail investors and institutional investors. All told, the company has handled transactions worth $456 billion over its life span as a company.
While Coinbase may appear as a venue for retail traders wanting to trade cryptocurrency, Coinbase has seen strong growth of institutional customers as well. “We provide hedge funds, money managers, and corporations a one-stop-shop for accessing crypto markets through advanced trading and custody technology,” the company said in the filing.
The Cryptocurrency Exchange Is Already Profitable
For the full year of 2020, Coinbase has generated more than $1.3 billion in revenue. That was more than double the $534 million in 2019. Most importantly, the company was profitable for the first time last year with a net income of $322.3 million. That compares to a loss of close to $30 million the year before.
No doubt, the cryptocurrency exchange generates the vast majority of its revenues from transaction revenues. Adding to that, Coinbase also has a comparatively modest “subscription and services” revenue category. That brought in around $20.7 million in Q4 2020 revenues.
Perhaps you are an investor in traditional asset classes looking to venture into the blockchain space. If so, you will first have to familiarize yourself with the acronyms. There may be times when you speak to someone from the blockchain space, and it sounds like it’s all Greek to you. You might even start questioning your own intelligence. One of these jargons is DeFi. For those who are new to the space, DeFi or decentralized finance is a host of financial applications built on top of smart contracts. The primary advantage of DeFi is cutting out middlemen from all kinds of transactions.
One notable number worth mentioning is the amount of money Coinbase is holding in its custodial accounts. The total value of crypto assets grew 200% from $1.2 billion to $3.76 billion over the past year and is supported by growth in DeFi. The key takeaway here is that DeFi is poised to be the next generation of cryptocurrencies. And that could be driving the market. Certainly, Coinbase is in the middle of this revolution.
Being a major cryptocurrency exchange, the fortunes of Coinbase will likely move closely with the prices of major cryptocurrencies. Besides, if more investors decide to trade cryptocurrencies, Coinbase would also see more business. On the flip side, should there be a prolonged dip in crypto prices, COIN stock would likely suffer. Nevertheless, if you believe that cryptocurrencies will become increasingly important in the future, Coinbase would be in a good position to benefit. Therefore, if you would like to bet on crypto without owning cryptocurrencies directly, COIN stock might just be what you are looking for.