Coinbase Stock - Too many Bitcoin eggs in one basket?
Plus, the Cathie Wood vs. Michael Burry fight
Coinbase stock, a Good Investment for Bitcoin Hodlers?
If you already own Bitcoin or other crypto, does it make sense to also own stock in one of the biggest players in the space? Let’s take a look.
Coinbase, the largest US cryptocurrency exchange, began trading on the Nasdaq stock exchange in April, following a direct listing, where insiders offered up their shares for sale on the market. On April 14th, it was offered at $250 per share, but briefly shot up to $429 the first day, settling at the close at $328. Quite a debut.
This week, the stock is trading at about $250, giving it a total market cap of $65 billion.
About Coinbase:
Coinbase Global, Inc. (COIN) was founded in 2012, very early in the Bitcoin and crypto movement. In just nine years, the exchange has grown to the second largest in the world (behind Binance) and boasts over 68 million account holders. The assets held on the Coinbase platform now exceed $200 billion, with 47% of the assets in Bitcoin. It offers trading in over 50 cryptocurrencies.
Currently, Coinbase earns over 90% of its revenue from trading fees, but is diversifying into several other areas. The company offers a custody service to large holders, a Visa card with crypto rewards, a US Dollar stablecoin, and also a “Coinbase Commerce” service for merchants accepting crypto. They hope to grow these areas enough so that trading fees will account for only 50% of revenue five years from now.
Who owns a lot?
The top institutional holders of Coinbase stock are Ark Investment Management (see below!) and The Vanguard Group. Together they own over seven percent of the outstanding shares. That seems like a ringing endorsement for the stock. Less than two percent of the company is owned by insiders.
How much does Coinbase earn?
Analysts’ estimates of revenue and earnings for Coinbase going forward are all over the lot. What we do know is that the company crushed all earnings estimates for the first and second quarters of 2021, with $4 billion in revenue and earnings per share of over $9.00. For a financial services firm, their gross profit margin is extremely high.
What’s the outlook for the stock?
Average estimates of revenue for this year in full are about $7-8 billion and $9-10 EPS. Of 16 analysts covering the stock, 12 rate it either a “strong buy” or a “buy,” according to Yahoo Finance.
The consensus price target for one year from now is $370. The low estimate is $210 and the high prediction is a whopping $600.
My take:
I see Coinbase in the very near future as a full-service financial services company, offering trading, custody services, interest-earning platforms and credit card services. They have the potential to totally dominate the US space for the crypto industry and be a strong player in many areas of financial services. For all of these reasons, their users, their earnings, their services, I don’t see the stock as just a play on Bitcoin. Sure, rising crypto prices will generate more customers for Coinbase, but they should be positioned to thrive through bull and bear markets.
I struggled with the notion that owning Bitcoin and owning Coinbase was too many eggs in one basket, but as I researched the company I thought otherwise. I would rate it a “strong buy” for any price under $300 at this point.
Analyst Dan Ives of Wedbush Securities, in a note to his clients, summed up my feelings really well:
“Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of Bitcoin and crypto in the coming years.”
Historical Bitcoin Prices, August 18th. Wow!
2021 $45,279
2020 $12,328
2019 $10,322
2018 $ 6,395
2017 $ 4,159
2016 $ 573
2015 $ 219
2014 $ 461
2013 $ 99
2012 $ 12
2011 $ 11
Michael Burry and Ark’s Cathie Wood are sparring. Here’s why:
Michael Burry is bearish again.
Scion Asset Management’s Michael Burry became famous when he successfully bet against mortgage-backed securities during the Great Financial Crisis. Burry was portrayed by actor Christian Bale in the movie adaptation of the Michael Lewis book, “The Big Short.” Now, Burry has taken a $31 million short position against shares of the Ark Innovation ETF (ARKK). The fund is the flagship of Cathie Wood’s Ark Investment Management firm. Wood’s fund, focused heavily on tech investments and yes, crypto, crushed the markets in 2020, propelled by some its biggest holdings, Zoom, Teladoc, and Tesla.
Burry cautions that Wood and Ark won’t duplicate their recent performance, especially since the ETF has invested heavily in both cryptocurrencies and Coinbase stock (COIN). Wood fought back, arguing that her firm sees inflation easing, technology breakthroughs continuing, and commodity prices declining. She fired back at Burry in a tweet storm this week, saying he doesn’t understand opportunities in the “innovation space.” Stay tuned.
Issue No. 17, August 20, 2021
Rick Mulvey is a CPA, forensic accountant and crypto consultant. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.
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