Entry Price: $222
Target Price: $300
Projected Yield: 35%
Time Line: 3 to 6 months
Position Size: 2%
About Coinbase Global
Coinbase Global, Inc., better known as Coinbase, is a US company that operates a cryptocurrency exchange platform. Coinbase has no official headquarters and operates remotely. It was founded in 2012 by Brian Armstrong and Fred Ersam; as of March 2021, it was the largest cryptocurrency exchange in the USA by trading volume.
In mid-April, Coinbase had a successful IPO: on the first day, the company's value reached $100B; however, after that, the downturn in the cryptocurrency market put the stock under pressure, as a result of which they sank by 42% compared to the opening price on the first trading day. In the current environment, this may turn out to be an excellent opportunity to buy the stock.
What's the Idea?
The idea lies in capitalizing on the stock that may rise with the increased interest in cryptoassets and the development of new products, including a line of credit.
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Why Trade Coinbase Global?
Reason 1: Leading Position in the Market and High Trading Volumes
Coinbase faced two major challenges in Q2 2021, one being sharp correction in the cryptocurrency market and the other, dissatisfaction with high fees. Both issues, however, are overpriced.
Indeed, a decline in major cryptocurrencies prices will contribute to the decline in Coinbase's earnings, since the fees are pegged to the value of the assets on which clients make trades. However, there are additional factors that influenced the earnings; during the decline in the crypto market, the trading volumes increased significantly, as well as the number of new clients who decided to take advantage of the correction. This is confirmed with the recent significant increase in traffic that temporarily disrupted the exchange's website. Thus, both factors can offset the negative effect of the drawdown in the cryptocurrency market.
Coinbase's trading fees are rather high, which can subsequently negatively affect the company's competitive edge. Currently, however, Coinbase has a significant share of the cryptocurrency market, as well as a huge loyal customer base. In Q1 2021, the number of verified users reached 56M, while the MTU (Monthly Transacting Users) amounted to 6.10M.
Currently, Coinbase provides its services in more than 100 countries; it is also the largest crypto exchange in the US in terms of trading volume: in Q1 2021, the turnover reached $335B. Basically, the exchange is popular because of its reliability, reputation, and high quality side services in the cryptocurrency domain. Reliability is the most important thing, since the cryptocurrency market is not yet regulated; this is why both the existing and new customers remain loyal to Coinbase and are in no hurry to switch to other exchanges. Thus, relatively high fees are unlikely to have any significant impact on the company's earnings in the short term and will not become a challenge for new customers.
Reason 2: New Product Development
Coinbase's earnings may also rise with the development of new financial instruments related to cryptocurrencies. The company is actively working on products for both retail and institutional clients and businesses.
Currently, apart from making transactions, with Coinbase, you can:
- Keep your assets as you would as a deposit in a bank
- Get up to $100,000 in cryptocurrency loans
- Access investment products and support services for institutional investors
- Get business tools, such as venture capital gains, payroll solutions, and funding for Coinbase debit cards backed by Visa.
These products have just appeared but are gradually gaining popularity with the clients; over time, they may well become a significant share in the company's revenue structure.
Reason 3: Financial Performance
Last year was quite successful for Coinbase, as both the earnings and profits went up thanks to the major rise in the crypto market (which also boosted crypto's popularity). This year, the results are also very good: in Q1 2021, the earnings reached $ 1.80B, which means an increase of 842% YoY, while net profit increased to $771M, rising by 2,300% compared to the same period last year.
Coinbase also significantly increased its business margins, with the net profit margin reaching 42.80% versus 16.80% a year earlier. The company has good cash reserve of almost $2B, with no debt burden; this opens up great opportunities for further development and diversification of business areas. Coinbase's free cash flow is positive, which means it has no liquidity issues.
The ratios are currently the following:
- P/S — 16,0x;
- Current PE — 95,8x;
- Forward PE — 48,3x.
This is higher than what the traditional exchanges providing access to stocks, bonds, or derivatives, have. Meanwhile, the crypto asset market is just starting out and there is huge growth potential for it, which is already priced into Coinbase stock.
In May, various investment institutions and banks set high target prices for Coinbase, as follows:
- Compass Point — $325;
- Piper Sandler — $335;
- Rosenblatt Securities — $400;
- The Goldman Sachs Group — $306;
- JPMorgan Chase & Co — $371;
- Wedbush — $275;
- Mizuho — $225.
How to Use the Idea
- Buy Coinbase stock at $222.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $300.
How to Buy Coinbase Global?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type COIN.US (Coinbase Global ticker in the NASDAQ) in the search box, and select Coinbase Global in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type COIN.US (Coinbase Global ticker in the NASDAQ) and select Coinbase Global in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Europe Ltd. or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance Europe Ltd. do not warrant its completeness or accuracy except with respect to any disclosures relative to theFreedom Finance Europe Ltd. and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.