After Earnings, Is Coinbase Stock a Buy, a Sell, or Fairly Valued?

Coinbase International COIN launched its first-quarter earnings report on Could 8. Right here’s Morningstar’s tackle Coinbase’s earnings and inventory.

Key Morningstar Metrics for Coinbase International

What We Considered Coinbase International’s Earnings

Coinbase reported sequentially weaker first-quarter earnings as falling cryptocurrency costs through the quarter led to much less buying and selling and cryptocurrency asset losses. Internet income decreased 11% from final quarter, although rose 24% from final 12 months, to $1.96 billion.

Why it issues: Whereas Coinbase’s first-quarter income was stable, its internet revenue fell to $65.6 million, or $526.6 million adjusted for cryptocurrency funding losses, from $1.18 billion final 12 months.

We usually dislike Coinbase’s selection to carry materials cryptocurrency investments because the agency is already closely uncovered to cryptocurrency valuations via its custody, staking, and buying and selling companies.
Falling cryptocurrency costs within the first quarter have been a headwind to the agency’s buying and selling quantity, which was the first wrongdoer behind the sequential lower in income. Whole buying and selling quantity decreased 10.5%, driving complete transaction income down 18.9% to $1.26 billion.

The underside line: We are going to keep our $170 truthful worth estimate for no-moat-rated Coinbase. We see the shares as modestly overvalued following their robust restoration from April lows.

Cryptocurrency costs are inherently risky, which contributes appreciable volatility to Coinbase’s quarterly outcomes. That mentioned, the agency has had appreciable success in rising its stablecoin income, which rose greater than 50% from final 12 months, mitigating a few of this cryptocurrency value publicity.

Arising: Earlier within the day Coinbase introduced that it intends to purchase Deribit, a cryptocurrency by-product alternate, for $700 million in money and 11 million shares, or roughly $2.9 billion in mixed worth.

The deal will bolster Coinbase’s worldwide enlargement efforts and its publicity to cryptocurrency by-product markets, through which the agency has solely not too long ago established a presence. With almost $10 billion in money and stablecoin property, the acquisition is properly inside Coinbase’s means.

Truthful Worth Estimate for Coinbase International

With its 2-star score, we consider Coinbase inventory is overvalued in contrast with our long-term truthful worth estimate of $170 per share, a rise from $150, which interprets to 19 instances our 2025 earnings projection. Round $2 of the rise comes from earnings since our final replace. One other $10 comes from increased secure coin income projections. USD Coin’s market capitalization elevated quickly within the closing months of 2024 and, to date, in 2025. Coinbase’s secure coin income comes from curiosity on the collateral behind USDC, which means that rising market capitalization feeds immediately into the agency’s high line. The remainder of the rise comes from increased buying and selling income expectations as we modify our mannequin to mirror the current rally in cryptocurrency costs.

Our truthful worth estimate relies upon closely on buying and selling quantity assumptions, the speed at which we count on Coinbase’s buying and selling charges to compress over time, and curiosity revenue projections from Coinbase’s partnership with Circle for the secure coin USDC.

Financial Moat Ranking

In our view, Coinbase doesn’t have an financial moat regardless of being the main cryptocurrency alternate in america. Coinbase has been in a position to carve out a robust place within the cryptocurrency alternate trade by deliberately positioning itself as a dependable and regulation-compliant place to purchase and promote cryptocurrency in an trade full of threat, weak safety practices, and spotty regulatory enforcement. This has allowed the corporate to efficiently cost charges increased than lots of its friends whereas constructing a massive pool of liquidity on its platform. The corporate’s reputational benefits have solely grown in recent times, following the collapse of one in every of its largest rivals, FTX, as a consequence of monetary fraud. Whereas we do count on payment compression to happen in the long run, current occasions will possible enable Coinbase to proceed to cost a premium within the quick future.

Nonetheless, Coinbase depends on the expansion and success of bitcoin, Ethereum, and different cryptocurrencies to generate returns on its invested capital. Cryptocurrency remains to be extremely speculative, and its long-term success and viability is on no account assured. Coinbase has constructed a robust aggressive place, however there’s an excessive amount of potential for its returns on invested capital to quickly evaporate for us to award the corporate a moat.

Monetary Power

Coinbase is in a robust monetary place, although it must be, because the agency’s heavy publicity to cryptocurrency costs and volatility can result in sharp swings in income and profitability. The corporate ended December 2024 with greater than $8.5 billion in money and nearly $2.8 billion in cryptocurrency investments, which embody greater than $1.2 billion in USDC, a cryptocurrency pegged to the US greenback. These property are held in opposition to $4.2 billion in debt.

The choice to maintain robust money reserves is smart, given how risky the corporate’s income era may be, and it provides Coinbase room to maneuver throughout extended weak cryptocurrency markets. We expect staying comparatively unleveraged will probably be an necessary step in holding the corporate financially safe in the long run via market cycles.

Danger and Uncertainty

We give Coinbase a Morningstar Uncertainty Ranking of Very Excessive. Coinbase will get greater than half of its internet income from buying and selling charges at its alternate enterprise. Charges are charged as a proportion of the underlying property being traded, creating direct publicity to cryptocurrency costs. The cryptocurrency market is very risky and deeply cyclical. In 2022, Coinbase’s income fell greater than 59% from the prior 12 months as cryptocurrency costs collapsed. The variety of lively merchants on Coinbase’s platform can differ sharply based mostly on market efficiency. At the moment, this publicity is performing to Coinbase’s benefit, however the sturdiness of the present market restoration is a main level of uncertainty. The corporate can be uncovered to falling curiosity via its participation in USDC, which generates vital curiosity revenue for the agency.

There may be additionally a materials quantity of environmental, social, and governance threat in Coinbase’s enterprise. Coinbase operates with a broad scope. It acts as an asset custodian, dealer, and alternate within the cryptocurrency economic system. This creates vital potential for conflicts of curiosity, which may result in reputational injury or regulatory motion. There are additionally authorized and regulatory grey areas in Coinbase’s enterprise.

COIN Bulls Say

Coinbase has established itself because the main US cryptocurrency alternate and constructed a robust repute for safety in an trade full of threat.
Cryptocurrency costs elevated sharply on the finish of 2024, resulting in a lot increased buying and selling quantity and income.
There may be a international marketplace for cryptocurrency. Regulatory approval from worldwide regulators will enable Coinbase to develop its operations and improve its footprint globally.

COIN Bears Say

Cryptocurrency markets have traditionally been deeply cyclical, with lengthy durations of low costs and depressed buying and selling quantity. This provides appreciable volatility to Coinbase’s income circulate.
The regulatory panorama and long-term viability for cryptocurrency stays unclear, with regulators changing into extra aggressive within the aftermath of the high-profile fraud and the failure of FTX.
Coinbase’s secure coin income depends on rates of interest, including one other layer of cyclicality to the agency’s outcomes.

This text was compiled by Gautami Thombare.