Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for Coinbase Global
- Fair Value Estimate: $170.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Very High
What We Thought of Coinbase Global’s Earnings
Coinbase Global COIN reported sequentially weaker first-quarter earnings as falling cryptocurrency prices during the quarter led to less trading and cryptocurrency asset losses. Net revenue decreased 11% from last quarter, though rose 24% from last year, to $1.96 billion.
Why it matters: While Coinbase’s first-quarter revenue was solid, its net income fell to $65.6 million, or $526.6 million adjusted for cryptocurrency investment losses, from $1.18 billion last year.
• We generally dislike Coinbase’s choice to hold material cryptocurrency investments, as the firm is already heavily exposed to cryptocurrency valuations through its custody, staking, and trading businesses.
• Falling cryptocurrency prices in the first quarter were a headwind to the firm’s trading volume, which was the primary culprit behind the sequential decrease in revenue. Total trading volume decreased 10.5%, driving total transaction revenue down 18.9% to $1.26 billion.
The bottom line: We will maintain our $170 fair value estimate for no-moat-rated Coinbase. We see the shares as modestly overvalued following their strong recovery from April lows.
• Cryptocurrency prices are inherently volatile, which contributes considerable volatility to Coinbase’s quarterly results. That said, the firm has had considerable success in growing its stablecoin revenue, which rose more than 50% from last year, mitigating some of this cryptocurrency price exposure.
Coming up: Earlier in the day Coinbase announced that it intends to buy Deribit, a cryptocurrency derivative exchange, for $700 million in cash and 11 million shares, or roughly $2.9 billion in combined value.
• The deal will bolster Coinbase’s international expansion efforts and its exposure to cryptocurrency derivative markets, in which the firm has only recently established a presence. With nearly $10 billion in cash and stablecoin assets, the acquisition is well within Coinbase’s means.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.