So Coinbase had it’s first earnings report as a public company and the results were pretty much as expected (or a slight miss).
Revenue: $1.80 billion versus $1.81 billion expected
Earnings per share: $3.05 versus $3.09 expected
Now before they went public they did talk about expected results in Q1saying that they would come in around $1.8 billion and at that point it was already April….so not really sure how the expectations can be different than what Coinbase had given guidance unless analysts thought they company was lying or sandbagging 🙂
When Coinbase went public in April, it was right as bitcoin was trading at a near all time high and crypto in general was being hyped up. Not that it isn’t still hyped up, but I think the excitement around getting involved with a large company in the crypto space overtook the fundamentals of the company when it reached the $420/share levels on opening day.
Since they went public it’s been a different story. Coinbase has taken the ride down with the rest of the more speculative growth market. Which if you are not an investor in the company is good news as it approaches more reasonable valuations.
I like Coinbase as a user and think they have one of the cleanest user interfaces. The company also seems like one that has a good image and does try to work with regulators. Basically we need companies like Coinbase to give crypto a better image and name compared to only shady websites ran out of a country without any regulations and rules.
What I’m trying to say…is I like the stock at a certain price 🙂
Shareholder Letter Highlights
Reading through the earnings release one point did strike me that I believe is important to highlight and a point I brought up in the youtube video I made a month ago when they were about to IPO.
“Competition is increasing as new market entrants join the crypto economy every month. Our competitors are supporting certain crypto assets that are experiencing large trading volume and growth in market capitalization that we do not currently support, as well as offering new products and services that we do not offer. We welcome these challenges as they indicate that the market we serve is growing rapidly, but we also have to continue to move quickly to address them, and that inspires us towards action and growth.”
Coinbase realizes it needs to expand the tradeable assets it provides and move at a faster pace to bring on new projects. More volume equals more revenue and profits. Companies like binance/crypto.com tend to add new tokens relatively fast so people have a faster opportunity to trade. I agree with Coinbase that they need to be faster in this area.
I mean there is also the wild wild west of decentralized exchanges that offer the ability to trade shitcoins/memecoins that pop up, but I don’t think the hype around shit coins (and therefore volume) will be a sustainable space for a company like Coinbase to enter.
Things like…ASS coin lol
We can see the importance of the volume as the chart below shows the revenue breakdown.
It is clear the dependency on trading volume is the key driver of revenue for Coinbase right now. But I really would like to see their other streams start to build up.
For example I made a video on ether staking on Coinbase, and how they can provide ease of access to staking a take a small % of the revenue from staking. I really like the sustainability and potential there!
But the whole point of the image above is to show how the risk around Coinbase at current valuation is sustainability of revenue/profits if crypto slows down.
As for the earnings report, we kind of already knew the Q1 results, so I was more curious about the guidance that was provided as it may give more insight into full year 2021.
They had this to say:
“it is important for investors to remember that our business is inherently unpredictable. MTUs, Trading Volume, and therefore transaction revenue currently fluctuate, potentially materially, with Bitcoin price and crypto asset volatility. As a result, revenue is difficult to forecast. In the interest of transparency, our approach to sharing information relative to future performance will be consistent with how we operate the business. That includes assessing and planning for a wide range of potential outcomes”
So similar to what I mentioned above in the unpredictability they didn’t give a hard number, but did give us some numbers to work with.
Projection of MTU they said the following:
From this I want to use 5.5 million as the assumption.
For revenue per MTU I’m going to use $60 which is the lower than the calculated $79.5 per MTU in Q1 of 2021. For profit margin I am assuming a slight drop as they boost their research and development. When I do that I get a forward P/E of around 22.28 which isn’t too shabby.
I obviously think the stock is more reasonably priced here compared to where it opened at the IPO. The case could be made for margin compression or the possibility of a crypto crash would take down the estimated net income of around $2.2 Billion for 2021.
I think though if we are talking growth/speculative positions in the portfolio, at least Coinbase is expected to be taking in profits and not pre profit 🙂
I don’t mind it at these prices ($250-$265 level) as I feel like it is fairly valued if I’m holding for the long term but would really start to like the risk/reward at $40 billion valuation.
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