Company Reports

As the leading US-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field. Unlike traditional exchanges in the US, Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. The firm's custody business has benefited from the approval of bitcoin and ethereum ETFs as Coinbase was selected for custody services by the majority of approved funds. Coinbase has also continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

No-moat-rated Coinbase reported second-quarter results that were a bit worse than we had expected. Revenue increased 108% from last year but declined 13% from last quarter to $1.38 billion. Meanwhile, net income increased to $36 million from a loss of $97 million last year, though this includes $248 million in after-tax losses on the firm's cryptocurrency investment portfolio. As we incorporate these results, we do not plan to materially alter our $130 fair value estimate for Coinbase.

No-moat-rated Coinbase reported very strong first-quarter earnings as rising cryptocurrency prices and high volatility drove higher revenue across the firm's business. Net revenue increased 116% from last year and 75% from last quarter to $1.6 billion. Meanwhile, net income increased to $1.18 billion from a loss of $79 million last year, though this includes a $737 million gain from mark-to-market cryptocurrency assets.

We are increasing our fair value estimate for Coinbase to $130 per share from $110, which translates to 32.8 times our 2024 earnings projection. Around $15 of the increase comes from higher expected transaction revenue expectations. Cryptocurrency markets have extended their rally into 2024, with Bitcoin reaching new all-time highs. Coinbase's results have historically been highly correlated with cryptocurrency valuations, and we do not expect this time to be an exception, with the firm's recent trading volume coming in far above 2023 levels. Given current market conditions, our near-term expectations for Coinbase are no longer realistic as the firm is likely solidly profitable now. Additionally, about $5 of our positive adjustment comes from higher interest income assumptions from Coinbase's participation in USDC. USDC's market capitalization has fully stabilized now, increasing to around $30 billion from a low of $25 billion last year, ending a period of steady outflows. We still expect interest income to decline in 2024 and 2025 due to lower interest rates, but the stable coin is clearly on better footing now.

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. Coinbase has continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

No-moat-rated Coinbase reported strong fourth-quarter results as a surge in cryptocurrency prices and volatility drove a sharp recovery in the company’s trading revenue. Revenue increased 38% from last year and 42.5% from the previous quarter to $953 million. Meanwhile, Coinbase returned to GAAP profitability with diluted earnings per share of $1.04, though the company did benefit from a $171 million tax benefit during the quarter.

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. Coinbase has continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

We are increasing our fair value estimate for no-moat Coinbase from $80 to $100 as the company benefits from a strong recovery in cryptocurrency prices as it heads into 2024. The bulk of the increase comes from higher near- to medium-term trading revenue expectations as cryptocurrency trading volume has more than doubled from its 2023 lows. Around $5 of the positive adjustment comes from higher custody revenue projections as Coinbase also benefits directly from higher cryptocurrency prices though its asset-based custody fees.

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. Coinbase has continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

No-moat-rated Coinbase reported third-quarter results that were in line with our expectations as lower trading revenue was offset by higher stablecoin income and lower spending. Coinbase’s net revenue rose 8.2% year over year but fell 6% sequentially to $623 million. Meanwhile, net losses narrowed to just $2 million from $545 million last year as Coinbase benefits from its impressive cost-cutting efforts this year. As we incorporate these results, we do not plan to materially alter our $80 fair value estimate for Coinbase, and we see the shares as roughly fairly valued.

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation, regulatory compliance, and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field with hundreds of competing firms trying to grab market share. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. Coinbase has continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

No-moat-rated Coinbase reported weak second-quarter earnings that were not as bad as we had expected, as lower trading revenue and interest income hurt results. Coinbase’s net revenue fell 17.5% year over year and 10% sequentially to $662 million. Meanwhile, net losses narrowed to $97 million from $1.1 billion last year due to a dramatic decrease in the firm’s expenses.

Shares of Coinbase were trading sharply higher on July 13 in reaction to the results of the SEC’s case against Ripple, the issuer of the cryptocurrency XRP. In 2020, the SEC alleged that Ripple's sales of XRP in private placements to institutional buyers and to the public through open-market transactions on exchanges were unregistered sales of securities. The trial between Ripple and the SEC has been a much-watched case in cryptocurrency as the question of whether cryptocurrencies are securities has important ramifications for the industry as a whole, as well as for Coinbase’s own struggles with the SEC.

The SEC has filed charges against no-moat Coinbase, accusing the firm of acting as an unregistered securities exchange, brokerage, and clearing agent. Additionally, the agency is also accusing Coinbase of issuing unregistered securities offerings through its staking service. An official announcement was not entirely unexpected, as Coinbase had already announced that it had been served a Wells notice back in March. Moreover, the agency has moved against Coinbase’s largest rival, Binance, just the day prior. While the SEC’s complaint was expected, this is still a material negative event for Coinbase, particularly given the breadth of the charges.

No-moat-rated Coinbase reported improved results as improved cryptocurrency market conditions, increased interest income, and significant cost-cutting efforts led to significantly reduced losses for Coinbase. The company’s first-quarter net revenue fell 34% from last year but increased 22% from last quarter to $772.5 million. Meanwhile, net loss was $79 million, inclusive of $144 million in restructuring expenses, compared with a loss of $430 million last year. As we incorporate these results, we are maintaining our $80 fair value estimate for Coinbase. While we do see the shares as undervalued, we highlight our Very High Morningstar Uncertainty Rating for Coinbase, as it faces significant regulatory uncertainty due to the Wells notice it received from the SEC and the firm remains exposed to cryptocurrency markets, which are inherently volatile.

We are reducing our fair value estimate for no-moat-rated Coinbase to $80 from $90. Around $3 of the negative adjustment comes from lower staking and trading revenue projections as we build in more regulatory risk to our base case in light of Coinbase receiving a Wells notice from the SEC. About $7 of the reduction comes from lower interest income projections. Interest income was a significant positive for Coinbase in an otherwise grim 2022 as the company benefits from rising interest rates. Interest income rose $7.6 million in the first quarter of 2022 to $182 million by the fourth quarter, or around 30% of revenue, and helped balance the collapse in Coinbase's transaction revenue.

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp to the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation, regulatory compliance, and record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field with hundreds of competing firms trying to grab market share in the rapidly growing space. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. Coinbase has continued to branch off into adjacent businesses offering the stablecoin USDC through its partnership with Circle, a crypto debit card, blockchain infrastructure, and data analytics services.

No-moat-rated Coinbase reported weak fourth-quarter results that were largely in line with our expectations as the company continues to be impacted by weak cryptocurrency markets but benefited materially from higher interest rates. The company’s net revenue fell 76% from last year, but increased 5% sequentially to $605 million. Net income fell from a gain of $840 million last year to a loss of $557 million this year. As we incorporate these results, we are maintaining our $90 fair value estimate for Coinbase. We do see the shares as undervalued at current prices, but we emphasize to investors that despite higher interest income, Coinbase’s results are still heavily reliant on cryptocurrency prices and market volume, which are highly volatile, and the company will need to execute well on its planned cost reductions.

No-moat-rated Coinbase announced that despite the turmoil unleashed by the collapse of FTX in November, the company expects its usage metrics and expenses for 2022 to fall within its existing annual guidance. As a result, Coinbase expects to remain inside its $500 million per year adjusted EBITDA loss target. That said, this implies that Coinbase will continue to report steep losses in the fourth quarter as the company remains pressured by weak cryptocurrency markets.

No-moat-rated Coinbase’s shares have experienced a spike in volatility in recent days as rival exchange FTX’s woes tore through the broader cryptocurrency ecosystem and sent cryptocurrency prices tumbling. Self-dealing between FTX and its associated firm, Almada Research, has left the exchange unable to honor client withdrawal requests, leaving customer funds trapped at the exchange. While Binance, the largest cryptocurrency exchange in the world, had looked like a potential savior for the firm, the company pulled out of a potential deal after a short due diligence process. This leaves FTX’s eventual failure highly likely, though the firm continues to look for funding options.