Strong cryptocurrency growth could translate into big gains for Coinbase

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AThis has been the case for all recent cryptocurrency-related events, the Coinbase (PIECE OF MONEY) the initial public offering attracted considerable attention from investors. Coinbase’s platform makes it easy to buy, sell, and store cryptocurrency.

On the market, COIN stock hit a high of $ 429. This was followed by some profit taking, and the stock is currently trading at around $ 300. It looks like Coinbase is attractive for long term exposure given the wider adoption of cryptocurrencies. Company-specific fundamentals also point to an uptrend in stocks.

What factors make Coinbase stand out?

A recent report from Crypto.com suggests that the total number of global crypto users reached 106 million in January 2021. Six months back, the number of crypto users was 74 million. As such, cryptocurrency adoption appears to be at an inflection point.

Specific to Coinbase, the number of users has been steadily increasing. The company reported 32 million verified users for fiscal 2019. Last year, the number of verified users jumped to 43 million. Additionally, for the first quarter of 2021, verified users jumped to 56 million.

Of course, users who transact are more important from a revenue perspective than verified users. In December 2019, the company reported 1 million users in transaction. In March 2021, users transacting increased to 6.1 million; in 15 months, the number of users who have made transactions has increased sixfold. A large verified user base is likely to ensure that the growth of transaction users remains strong.

These are all positive trends that will likely translate into higher stocks. (See the Coinbase share analysis on TipRanks)

Growth and strong margins

With an increase in the number of users in transactions, Coinbase has reported strong revenue growth.

For fiscal 2020, the company recorded revenue growth of 139.3% to $ 1.3 billion. For the same period, the company recorded EBITDA growth of 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 linked to a significant expansion of key margins.

Additionally, for fiscal 2020, the company reported operating cash flow of $ 294 million (excluding the impact of change in custody funds due to clients). With strong revenue growth coupled with an expansion of EBITDA margin, OCF is likely to leap over the next few years. It would also imply healthy free cash flow.

Coinbase reported $ 1 billion in cash and cash equivalents as of December 2020. With the proceeds from the IPO, the company has sufficient financial buffer to accelerate sales and marketing efforts. This will likely lead to user growth and sustained revenue growth.

On top of that, the company has seen steady growth in its market share. In the first quarter of 2021, the company’s total platform assets stood at $ 223 billion, or 11.3% of the crypto asset market. In fiscal 2018, the market share of the company’s crypto assets was 4.5%.

From a growth perspective, it should be noted that in fiscal 2019, Bitcoin and Ethereum accounted for 72% of the trading volume. In fiscal 2020, the concentration of transaction volume for these two assets fell to 56%. With Coinbase supporting an increasing number of assets, its trading volume will be less correlated to Bitcoin’s price movements, and it is also likely to attract new users.

Taking of Wall Street

With regard to the analyst community, 5 purchases and 2 holdings were awarded in the last three months. So Coinbase is a moderate buy. At $ 447, analysts’ average price target implies upside potential of 50.18%.

Coinbase stock forecast and prediction

Final points of view

Coinbase currently has a market cap of $ 59 billion. Considering the revenue forecast of $ 1.8 billion for fiscal 2021, COIN shares are trading at 32 times forward earnings, which may seem expensive.

However, it should be noted that the growth in revenue and cash flow is likely to remain strong in the years to come. Even though revenue growth is around 30% to 40% over the next few years, with a healthy EBITDA margin, the business will generate strong free cash flow.

The title therefore seems attractive, given the potential for long-term growth. Yes Adoption of Bitcoin and cryptocurrency continue to accelerate at the current rate, this could just be the start of Coinbase’s growth story.

Disclosure: As of the date of publication, Faisal Humayun does not have (directly or indirectly) any position in any of the titles mentioned in this article.

Warning: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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