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Analysis of Coinbase Global Inc.

Analysis of Coinbase Global Inc.

25 May 2022

Coinbase is an American company that manages a cryptocurrency exchange platform. Coinbase is a distributed company; all employees work remotely, and the company does not have a physical headquarters. It is the largest cryptocurrency exchange in the United States by trading volume.

Coinbase was founded in 2012 and is based in Wilmington, Delaware.

Over the past 4 years, the company’s revenue has increased 13 times, net profit in 3 years has increased 7.5 times, and FCF — 2 times. In 2019, profit and free cash flow were negative. The company, which entered the stock exchange a year ago, has a serious increase in indicators, but everything was spoiled by the 1st quarter of 2022, which turned out to be unprofitable. Moreover, according to forecasts, the loss will continue in the second quarter (-2 $ EPS).
Multipliers:
P/E 6 (average current for competitors 45)
P/B 2.2 (industry average 7.6)
P/S 2 (industry average 8.1)
Debt of $4.1 billion with current operating cash flow of $6.5 billion
No dividends
Share Price: $66

The cash flow discounting model shows a fair price of $96.
Simply Wall Street values the company at $133.
20 analysts give an average estimate of $177 per share.

The amount of money in the accounts exceeds the total debt of Coinbase. From the point of view of capital adequacy, the company is doing fine. The problems begin in making financial decisions. For example, Coinbase increased the staff, which no longer takes $121 thousand, but $413 thousand. In the operational part, the company loses competition to such exchanges as DigiFinex and FTX US.

Stocks are trading slightly below the 20, 50 and 200-day moving averages, which indicates an undervaluation of the stock. The market reacted very nervously to the report of the first quarter and forecasts for the second. The stock price has dropped 75% since the IPO.

Conclusion:
The future of the company depends on two factors: the quality of its management and interest in the crypto market. Coinbase cannot particularly influence the second, but its decisions depend only on the G&A department. The current decline in indicators is partly caused by the fall in crypto assets, administrative and strategic decisions can correct the situation in the company. Now the price for this asset is low, but the risk is high. No one knows where the fall will end.
You can buy it for growth stock portfolio only if you believe in the medium-term growth of the crypto market.

25 May 2022
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