Summary Coinbase faces short-term headwinds, including lower interest rates and reduced trading volumes, but long-term growth potential remains strong as crypto assets become mainstream. The company is transitioning from a crypto trading platform to a full-fledged financial platform, with growing revenues from subscriptions and services. COIN stock is highly profitable on an adjusted EBITDA basis, but Coinbase faces tough comps in the short term. The market for tokenized assets is likely to explode over time, but right now, Coinbase Global, Inc. ( COIN ) faces major headwinds. The stock has slumped since a booming start to 2024 and more headwinds from rate cuts aren’t likely to help the crypto exchange. My investment thesis is more Neutral on the stock for now before long-term growth trends kick into gear. Source: Finviz Tough Comps The crypto market saw volumes explode during Q1 of the year with bitcoin prices jumping back over $60K. The whole investment story in Coinbase is far more appealing as the company moves from a business just focused on crypto trading tied mostly to bitcoin to a full fledge financial with crypto transactions, ETFs, stable coins and non-bitcoin or Ethereum crypto trading. The opportunity now exists for revenues to move more towards subscription and services revenue like stablecoin and blockchain rewards. Coinbase still saw 1H results dictated by consumer transaction revenue with Q1 revenue of $935 million accounting for nearly 65% of total revenue. Source: Coinbase Q2'24 shareholder letter Revenues remains elevated in Q2, with bitcoin volumes remaining prices above $60K. Coinbase still produces 35% of trading volumes from bitcoin, but other crypto assets continue to grow market share with USDT trading now accounting for 10% of volumes, though not revenues with Solana jumping up to 10% of transaction revenues. Source: Coinbase Q2'24 shareholder letter As Coinbase discussed, the crypto company has shifted from only trading crypto for customers to a full-fledged financial platform. Base grew onchain crypto transactions by 300% QoQ, finally moving crypto to more than just an asset class. The lack of regulatory clarity is still holding back institutional investing in crypto. The company regularly discusses major banks only place 1% to 3% of institutional clients' assets in crypto, and the amount could jump to 10% to 20% on more clarity. Adjusted Profit Machine As with a lot of fintechs, Coinbase falls into the trap of GAAP profits versus adjusted EBITDA. The company is highly profitable on an adjusted basis due to a couple of large and volatile costs that detract from profits. Coinbase actually produced $1.0 billion in adjusted EBITDA in Q1 due to constrained costs that don't dramatically rise with transaction revenues. The big costs for the company are stock-based compensation and volatile gains or losses on crypto assets held for investment that don't impact operations. Source: Coinbase Q2'24 shareholder letter In a more normal Q2, Coinbase produced an adjusted EBITDA of $596 million. The company had $218 million in SBC and a $319 million loss on crypto assets held for investments. Coinbase actually reported operating income of $343 million in the quarter prior to the crypto losses. In addition, the company was hit with $84 million in interest expenses in the quarter that once removed boosted adjusted EBITDA. Investors would probably want to adjust tax expenses and these interest expenses or income as in prior quarters to derive a true adjusted profit. Either way, Coinbase is highly profitable, especially when crypto trading volumes are high. The company guided to relatively weak revenues in Q3 with subscription and services revenues flat to down at $530 to $600 million. The crypto markets limited volatility during Q3 and July transaction revenues of only $210 million, suggest trading volumes will be low. The consensus analyst estimates forecast revenues around $1.3 billion, but the biggest issue is whether Coinbase can grow revenues with lower trading volumes. The stock has a market cap of $42 billion with adjusted EBITDA running at a $2.4 billion clip based on Q2 results with consensus estimates up at $2.6 billion for 2025. Data by YCharts The stock is attractive at just 16x EBITDA targets. Coinbase has a lot of growth opportunities via international expansion, regulatory clarity bringing in institutions and expansion of investors and traders into crypto assets with the approval of ETFs and such. The biggest concern is that some current headwinds with lower interest rates and less volatile trading suggesting quarterly results will face headwinds in the short term. Investors should look for weakness to buy Coinbase for future growth. Takeaway The key investor takeaway is that Coinbase has a lot of growth potential ahead as crypto assets move more mainstream. Investors should simply wait for a better price as the market resets to a lower revenue stream in the short term.
