Is Coinbase Global Stock a Buy?

Coinbase Global (COIN -3.17%), one of the world's largest cryptocurrency exchanges, posted its first quarter report on May 2. Its revenue rose 112% year over year to $1.64 billion and beat analysts' estimates by $300 million. Its EPS of $4.40 also cleared the consensus forecast by $3.33 and improved from its net loss of $0.34 per share a year earlier.

Coinbase's growth rates look healthy, but does its stock still have room to run after rallying more than 330% over the past 12 months? Let's review its recent tailwinds, upcoming challenges, and valuations to find out.

Image source: Getty Images.

The crypto winter is finally ending

Coinbase generates most of its revenue from transaction fees, so it thrives when investors are actively trading cryptocurrencies. Its total revenue surged 514% in 2021 as stimulus checks, social media buzz, and a fear of missing out (FOMO) drove more investors to buy cryptocurrencies and other speculative investments.

However, its revenue plunged 59% in 2022 as rising interest rates popped that bubble. Its revenue declined another 3% in 2023 as that so-called "crypto winter" dragged on. But over the past two quarters, its total trading volume and revenue rose sequentially as the cryptocurrency market warmed up again.

Data source: Coinbase.

Two factors stabilized the market. First, Bitcoin's (BTC 0.82%) price more than doubled over the past 12 months as the first spot price exchange-traded funds (ETFs) were approved and its "halving" cut the rewards for mining Bitcoin in half. The ETFs made it easier for retail and institutional investors to buy Bitcoin, and Coinbase served as the primary custodian for most of those new funds. The Bitcoin halving, which occurs every four years, should reduce its available supply.

Bitcoin's rally also generated tailwinds for smaller cryptocurrencies like Ether (ETH 1.46%). In 2023, Coinbase generated 34% of its trading volume from Bitcoin, 20% from Ether, and 11% from its stablecoins that are pegged to fiat currencies and precious metals. The remaining 35% came from smaller altcoins and other crypto assets.

Second, the market stopped bracing for higher interest rates. The Federal Reserve doesn't plan to cut interest rates until inflation cools off, but it also recently said it was unlikely to raise those rates again for the foreseeable future. That stabilization caused more investors to pivot toward cryptocurrencies, growth stocks, and more speculative plays.

Margin is expanding again

Coinbase's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins turned negative in 2022 as the crypto winter dragged on.

But in 2023, its adjusted EBITDA margin rose to 31% after it executed several rounds of layoffs and aggressively reined in its spending. It also continued to expand its Coinbase One subscription platform -- which offers commission-free trades, higher staking rewards, priority support, and other perks -- to stabilize its margins. It's also been expanding its Coinbase Prime platform for institutional investors. That expansion continued in the first quarter of 2024 as its adjusted EBITDA more than tripled sequentially and year over year.

Data source: Coinbase.

But during the first quarter conference call, CFO Alesia Haas said Coinbase would capitalize on the crypto market's broader recovery by making "prudent and modest" investments in its ecosystem while slightly increasing its headcount again. Haas assured investors that Coinbase had learned from the "lessons from the past" and knew that it expanded "too quickly" during the crypto market's previous rally in 2021.

Is it the right time to buy Coinbase's stock?

Coinbase didn't provide an exact outlook for the second quarter, but it expects its subscription and services revenue (which accounted for 31% of its total revenue in the first quarter) to grow 3%-17% sequentially and 57%-79% year over year -- "assuming crypto asset prices stay in the range we have seen year to date."

For the full year, analysts expect its revenue to rise 77% to $5.5 billion, its adjusted EBITDA to jump 181% to $2.7 billion, and its adjusted EBITDA margin to rise to 49%. However, investors should take those estimates with a grain of salt because they're still tightly tethered to the volatile cryptocurrency market.

At its current enterprise value of $51.7 billion, Coinbase is valued at nine times this year's sales and 19 times its adjusted EBITDA. Those valuations seem reasonable relative to its long-term growth potential, but Coinbase's stock will still rise and fall with the broader cryptocurrency market. But if you're bullish on cryptocurrencies, Coinbase might still be a great stock to buy, hold, and forget about for a few decades.