Is Coinbase Stock a Good Bet for Cryptocurrency Investors? – Yahoo Canada Finance | Jewelry Dukan

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Written by Aditya Raghunath at The Motley Fool Canada

In the past two years, cryptocurrencies have taken investors on a rollercoaster ride. Led by BitcoinThe crypto market reached record highs in November 2021 before declining significantly in 2022.

Despite the volatility associated with these digital assets, cryptocurrencies have always bounced back to record highs after a long bear market. While you can buy and hold bitcoin and other cryptos on centralized exchanges, there are several other ways to gain exposure to this highly disruptive asset class.

For example, you can try to buy shares of coin base (NASDAQ:COIN), one of the world’s leading cryptocurrency exchanges. Valued at a market cap of $17 billion, Coinbase stock is currently trading 81% below all-time highs. Let’s see if Coinbase is the ultimate contrarian bet or a value trap for stock investors right now.

Coinbase stock will remain volatile

Coinbase stock performance is closely linked to cryptocurrency performance. Coinbase generates much of its revenue from exchange fees and commissions, which in turn are related to trading volume. Typically, trading volumes are significantly lower during bear markets and pick up pace as crypto prices surge.

This is how Coinbase managed to grow its revenue from $1.27 billion in 2020 to $7.83 billion in 2021. Analysts now expect sales to fall 56.7% to $3.39 billion in 2022. In comparison, bottom line earnings from adjusted earnings are expected to decline from $14.5 per share in 2021 to a loss of $11.68 per share in 2022.

Coinbase announced its second quarter (Q2) earnings last month and reported revenue of $803 million, down 61% year over year. Net losses were $1.1 billion compared to a profit of $1.6 billion in the same period last year.

Total assets on Coinbase also fell to 9.9% in the second quarter from 11.2% in the first quarter, suggesting the company is losing market share to rivals like Binance and FTX. In comparison, Coinbase managed to improve its market share from 4.5% in 2018 to 11.5% in 2021.

Coinbase needs a diversified revenue base

It is imperative for brokers and exchanges like Coinbase to at least keep the assets on their platform as this can lead to revenue generation opportunities over time. In Q2, roughly 82% of Coinbase’s revenue came from transaction fees. But the company is now trying to diversify its revenue base by expanding its range of products and services.

It focuses on accelerating revenue from subscriptions and services, which include custody fees and even blockchain rewards. In the second quarter, this segment grew revenue by 44% year over year.

Coinbase continues to introduce new features including ether Staking and an advanced retail investor application in addition to the developer tools.

Coinbase recently announced that it is also expanding its cloud-based services. Over the years, cloud computing solutions have enabled companies to leverage hardware and software platforms without having to build their own infrastructure.

One of Coinbase’s cloud products is called Node and it is available for those who are in the Web3 space. To encourage adoption of the Coinbase cloud, Node is now available for free with the option to upgrade to an enterprise account.

Subscription revenue for Coinbase was $21.8 million in the second quarter, accounting for 3% of total revenue. But that number should continue to rise in the coming months.

The stupid snack

Coinbase is a high risk, high reward bet. If you are optimistic about the future of cryptocurrencies, it makes sense to buy and hold COIN stocks in your stock portfolio. Right now, Coinbase stock is also trading at a discount of 50% given consensus estimates of the price target.

The post Is Coinbase Stock a Good Bet for Cryptocurrency Investors? appeared first on The Motley Fool Canada.

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Stupid contributor Aditya Raghunath has positions in Bitcoin and Ethereum. The Motley Fool recommends Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool has a disclosure policy.

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