- Coinbase is expected to report earnings for the first time since its direct listing in mid-April.
- Ark analyst Yassine Elmandjra shares how the stock could scale to the $2.5 trillion crypto market.
- New Constructs CEO David Trainer breaks down why the stock could actually fall below $100 or less.
- See more stories on Insider’s business page.
All eyes are on Coinbase as the largest US crypto exchange is expected to report its first earnings report as a public company after the market closes on Thursday.
At its hotly anticipated public debut on April 14, shares of Coinbase, which opened at $381, hit an intraday high of $429.54 before ending the day at $328.28, giving it a market cap of about $86 billion.
Since then, the stock has been in a steady decline. It nearly sunk below its reference price of $250 on May 6 and closed at $283.61 on Wednesday.
As the first major crypto company to go public, Coinbase is setting a path for both incumbents and newcomers in the borderless crypto ecosystem. As such, investor concerns have arisen around whether the stock has peaked at $429 or still has more legs to run.
Currently, nine sell-side analysts cover the Coinbase stock, with 67% of them giving it a “buy” rating and the rest recommending that investors “hold” the stock. Among them, Oppenheimer analyst Owen Lau initiated coverage of the stock on Tuesday, giving it an “outperform” rating and setting a price target of $434 per share.
Gil Luria, head of institutional research at D.A. Davidson, has an even more bullish view on Coinbase, which he gave a “buy” rating and a price target of $650. Luria, who was the first Wall Street analyst to issue a research report on bitcoin back in 2013, believes that Coinbase is a market leader in a growing crypto economy.
“Coinbase is really a diversified way to invest in crypto,” he said in an interview. “If you’re not sure which specific crypto asset you believe is going to be successful, Coinbase will trade all of them and any of them, so they will do well regardless of what the winning crypto asset is.”
Indeed, a recent sign of momentum is that the Coinbase mobile app has topped the US Apple app store for the first time since late 2017, trouncing social media giants including YouTube, Facebook, and Instagram.
But why is the stock still down over 30% from its mid-April intraday high of $429?
Ark crypto analyst’s bull case
Ark Invest’s crypto-asset analyst Yassine Elmandjra said in a Tuesday market update webinar that “a lot of investors are misunderstanding the kind of growth that Coinbase has experienced since its founding.”
Cathie Wood’s Ark owns about 2.28 million shares of Coinbase stock worth about $650.66 million across three funds, according to analytics firm Cathie’s Ark.
Elmandjra explains that Coinbase‘s ability to continuously reinvent itself as the go-to crypto asset service provider has given it unmatched brand awareness and revenue growth.
While the company started in 2012 as a hosted bitcoin wallet, it quickly pivoted to building an exchange in 2014 once it realized that that service alone made it hard to attract customers who do not already own bitcoin. In 2017, it broadened its asset offering beyond just bitcoin and is now introducing institutional services in order to diversify away from the traditional trading volume revenue, according to Elmandjra.
The numbers back up the growth story too. Since its founding, Coinbase has attracted nearly 60 million verified users, and 6 million of those are monthly transacting, he said.
Elmandjra adds that the exchange has amassed over $90 billion worth of crypto under management, which excludes the appreciation in the last few months. It’s also experienced a 200% revenue compound annual growth rate since 2018 and in the first quarter alone posted $1.8 billion in revenue, exceeding its entire 2020 revenue by 50%.
“When taking a look at the longer-term opportunity here, we think Coinbase is one of the purest crypto-asset plays in the equity markets,” he said. “I think it will continue to scale proportional to the crypto market cap which today stands at almost $2.5 trillion.”
A research shop CEO’s bear case
David Trainer, chief executive of the investment research firm New Constructs, also expects strong earnings and record revenue from Coinbase.
But no earnings report, in his opinion, will be “strong enough to convince investors the company will exceed the extraordinary expectations for profits already baked into the current price,” he said in a Tuesday research report.
In fact, he believes that Coinbase’s price slump is already “a sign of things to come,” as shown in the chart below.
New Constructs, LLC
“The mistake investors are making here is that they assume that blockchain-based technologies and businesses will earn similar rents as their predecessor firms,” Trainer said in an interview. “But the whole point of blockchain is to disintermediate the traditional financial intermediaries who have, up to this point, exacted higher rates than necessary.”
He explains that the rise of decentralized finance and decentralized exchanges such as Uniswap, which are built atop the Ethereum network, could make crypto trading more efficient and thus compete with Coinbase.
Even in the centralized exchange space, Coinbase is facing rising competition, he said. For example, billionaire investor Peter Thiel-backed blockchain platform Block.one just invested $10 billion into its new subsidiary Bullish Global, which plans to release a crypto exchange later this year. Mike Novogratz’s Galaxy Digital also bought crypto startup BitGo for $1.2 billion in order to become a one-stop shop for institutions.
Incumbent exchanges such as Binance, Kraken, and Gemini are also competing to offer services and tokens ahead of Coinbase.
“It’s just like everyone knew the internet was going to be a big deal, and a lot of these early players ended up being crowded out by bigger folks who could get into the business,” he said. “So Coinbase is going to attract competition from the native crypto and blockchain community as well as from the JP Morgans and Bank of Americas of the world.”
Given the downside risks, Trainor expects Coinbase’s revenues and profits to taper off, which means the stock could head down to $100 or less.
“No one is going to sit there and just let Coinbase enjoy all the market share and profits, especially when their margins are so high,” he said. “That will attract competition. That’s just the natural way of the business world.”