Technology stocks have staged a remarkable comeback in the last 15 months. One such tech stock is Coinbase (NASDAQ: COIN), which has already almost tripled in the last year. Let’s see why I am bullish on this large-cap tech stock.
An overview of Coinbase
Valued at US$41.4 billion by market cap, Coinbase operates one of the largest cryptocurrency exchanges in the world. Despite its recent gains, Coinbase stock is still down 48% from all-time highs and can gain significant pace, especially if Bitcoin prices continue to surge.
Similar to most other brokerage platforms, Coinbase generates a majority of its revenue from commissions and fees, making it a cyclical company. During bull runs, trading volumes are elevated, resulting in stellar top-line growth. Similarly, during bear markets Coinbase and its peers experience a drastic decline in trading volumes and sales.
For instance, Coinbase increased sales from US$1.27 billion in 2020 to US$7.83 billion in 2021. The crypto market mayhem in 2022 meant Coinbase ended the year with US$3.2 billion in sales.
How did Coinbase perform in Q4 of 2023?
In the December quarter, Coinbase reported revenue of US$953.8 million with adjusted earnings of $1.04 per share. Comparatively, analysts forecast Coinbase to report revenue of US$732 million and earnings of US$0.95 per share in the fourth quarter (Q4).
Coinbase reported a net income for the first time since Q4 of 2021, as the bottom line stood at $273 million, indicating a margin of over 25%. Comparatively, sales were up almost 50% compared to the year-ago period.
Prices of several cryptocurrencies, including Bitcoin, have roughly doubled in the last six months as investors were excited about the approval of multiple spot Bitcoin exchange-traded funds, which should result in higher adoption of the digital asset.
Focus on diversification
In recent months, Coinbase has focused on diversifying its revenue stream. In 2022, transaction revenue accounted for 74.5% of total sales in 2022 and this number fell to 51.9% in 2023. Coinbase now generates a similar amount of revenue from its subscription and services business, which includes stablecoin revenue, blockchain rewards, interest income, and custodial fees.
Several exchange-traded funds (ETFs) have partnered with Coinbase, where the latter will provide custodial services for the investment giants. Subscription sales for Coinbase have risen from US$792.6 million in 2022 to US$1.4 billion in 2023. This allowed the company to limit its revenue decline in the last 12 months, which narrowed to just 3%.
Coinbase continues to expand its ecosystem. For instance, it launched the Coinbase International Exchange, where eligible customers can access sophisticated products such as derivatives through Coinbase Financial Markets. It also unveiled Base, a layer-2 Ethereum blockchain network. Further, Coinbase acquired key licenses and registrations, allowing it to launch in six new markets.
What is the target price for Coinbase stock?
Analysts tracking Coinbase stock expect the company to end 2024 with revenue of US$4.34 billion and earnings of US$1.14 per share. So, the stock trades at 9.8 times forward sales and 145.6 times forward earnings, which is quite steep.
Out of the 22 analysts covering COIN stock, eight recommend to “buy,” eight recommend to “hold,” and six recommend to “sell.” The average target price for COIN stock is $169, similar to its current trading price.
However, Coinbase stock can move higher and double again in 2024, despite its lofty valuation due to multiple revenue streams, high-margin products, and rising BTC prices.
