Coinbase Stock Is Worth Much More If It Continues to Dominate the Scene

Stocks to buy

Coinbase Global (NASDAQ:COIN) will report its fourth-quarter and full 2021 earnings on Thursday, Feb. 24 after the stock market closes. Analysts still expect to see very high profits for the quarter despite the slowing trend in crypto trading. As a result, COIN stock has a chance of rebounding from its recent low prices.

Flags of Coinbase and NYSE flying in the wind.

Source: rarrarorro /

In fact, COIN stock has been on an extended decline ever since it last reported earnings for Q3 on Nov. 9. It closed at $357.39 on Nov. 9, which turned out to be its peak. Since then, COIN stock has tumbled to $189.16 as of the close on Feb. 18. That represents a drop of 47% in the space of just three months.

That is simply too much, especially for such a profitable company.

Where This Leaves Coinbase Global

For example, analysts expect Coinbase to make $1.88 in GAAP earnings per share (EPS) in Q4 and up to $2.16 on a “normalized” basis.

But this is even better than the company did during Q3. It made just $1.62 EPS on a GAAP basis in Q3. Moreover, the company is producing large amounts of free cash flow (FCF). For the nine months ending Sept. 30, its FCF was over $7.7 billion.

So why is the stock tanking so bad? Everything looks good for Coinbase, right?

Well, not completely. First, all the level of trading activity in late Q4 and Q1 has obviously dropped as most cryptocurrencies have declined quite dramatically. Trading activity is always lower when asset prices fall.

So the market probably expects that Q1 revenue and earnings — and possibly even Q2 trading levels — will keep falling, pushing revenue and profits lower.

Fee Competition Emerging

In addition, there is an issue with Coinbase’s very high fee structure. New competitors are starting to emerge specifically to combat Coinbase’s stranglehold on crypto trading and its high fees.

For example, a company called DriveWealth claims that its new crypto trading product line will be available in the spring. It is specifically designed to combat Coinbase’s high fees.

DriveWealth says that Coinbase charges up to 200 basis points, or 2%, on crypto transactions.

However, the truth is that Coinbase charges about 1.5% on transactions over $200. In addition, it offers a lower “maker” and “taker” fee structure (equivalent to “market” and “limit” trading in stock) of around 50 basis points (i.e., 0.5%) and lower for higher than $2,000 transactions. This is with its Coinbase Pro account. Moreover, the company is also experimenting with a subscription model.

However, the bottom line is that so far, Coinbase has not felt the competition. It is in no hurry to change the basic structure of its extremely profitable business model.

Where This Leaves Investors in COIN Stock

This huge profitability is probably why analysts are still extremely positive on COIN stock. For example, reports that the average of 10 analysts is $346.66 per share or 83% over today’s price.

Moreover, Seeking Alpha reports that 22 analysts have kept their average price target of $348.85 steady over the last three months. Its chart shows the gap has widened as COIN stock has dropped.

I suspect again the reason is that Coinbase is really not feeling the effect of competition and, given its profitability, the price does not need to be lower.

As a result, unless net income, adjusted EBITDA and free cash flow are all much lower than forecast, I suspect that this downturn in COIN stock is not going to last too long. And that could especially be the case if Bitcoin (BTC-USD)and other major cryptocurrencies rebound during Q2.

Therefore, long-term investors in COIN stock can take advantage of this situation and average down into the stock, especially if it keeps falling.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.

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