Markets are considering negative earnings estimates for Coinbase for 2022 and 2023. However, the institutional aspect of cryptocurrencies and their acceptance could be very positive in the coming years.
Coinbase Global (COIN.US) released its results last week, posting a loss of $2.82 per share, since posting negative EPS of $1.96 per share from the market estimate of a profit of 0. $86, while revenue was good: $1.17 billion in revenue vs. the estimate of $1.48 billion, a 27% drop.
There is really little to cheer about after Coinbase's Q1 2022 results:
- Almost all metrics were negative
- Reduced 2022 and 2023 EPS estimates
The lack of data update for 2024, which still shows positive EPS of $2.07 for the year, is concerning. When all upstream quarterly estimates are negative, which is data that is not shown.
For this reason, from now on, investors should focus on the trends of 2022 and 2023 now and leave longer time frames in the background, given the uncertainty due to recent events.
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Coinbase revenue estimate, source IBES data by Refinitiv
However, Coinbase's revenue estimates don't look as bad as EPS declines, but they are still significant.
Users
In the latest quarterly report, user parameters are also important:
Of these, the most relevant metric going forward is (and will be) the split between retail and institutional trading volume.
In Coinbase's earnings preview, reference was made to the webinar or conference call sponsored by the Chicago CFA Society and the creator of Solana (SOLANA), noted during that call that he thought 99% of all cryptocurrencies and NFTs (Non Fungible Tokens) would eventually be useless. He also mentioned that stablecoins were not (in his opinion) that stable, which was prescient with what happened in Terra (UST-USD) / Luna (LUNA-USD) recently.
But on that call were two other professionals who had come out of traditional investment management and were working with traditional asset managers to dedicate more of their assets to Bitcoin and other cryptocurrencies.
Fundamentals
The explosion in trading of bitcoin, other cryptocurrencies, and digital assets in 2020 and 2021 was nothing short of impressive: Coinbase once generated $10 billion in free cash flow ("FCF") in 2021, but as mentioned above, looking at Coinbase's FCF future estimates wasn't that inspiring, here's what Refinitiv's recent FCF future estimates look like on May 15, 2022:
- 2025: $786 million
- 2024: 1,376 million dollars
- 2023: $896 million
- 2022: $644 million
Data source: Refinitiv IBES
With 3x revenue and forecasted negative EPS estimates for the next 2 years, as well as a 34x cash flow valuation ($22B market cap vs. $644M cash flow estimate), the next year looks dark for Coinbase. Morningstar cut its estimate of Coinbase's fair value following the results from $225 to $130 per share.
Conclusion
After the data on the results seen above, the dichotomy of extremes in the comments on Coinbase continues to hold. From "Coinbase is viable" to the other extreme such as Warren Buffett's comments of "I wouldn't give $25 for the entire cryptocurrency market". This probably indicates that the truth about the long-term viability of digital assets lies somewhere in the middle.
While the Federal Reserve and the PBoC (People's Bank of China) are currently studying "digital currencies", it is indicative of the viability of bitcoin (and perhaps only bitcoin) as a medium of exchange and thus "some deposit of worth". The assets and businesses of NFTs and other cryptocurrencies (stable or not) could ultimately be worthless.
While in 2017 the fall of bitcoin from approximately $20,000 to almost $2,000 there was no opportunity to consider a position on Coinbase (not yet listed), now the scenario is different. Guidance for Q2 2022 and comparison to Coinbase's Q2 2021, which was its strongest quarter ever, are likely to keep investors quiet on COIN.US stock.
Technical analysis
Under these circumstances, we can clearly see that even Bitcoin has fallen less from its highs than Coinbase itself (-61% vs. Coinbase's -82%). Leaving a sign that perhaps, and only perhaps, Coinbase in this case is more volatile than the main cryptocurrency itself.
However, not everything is bad for Coinbase. While in the case of a complete recovery for Bitcoin it would mean a rise of 140%. If the synergy in the behavior of both assets is fulfilled, Coinbase has the potential to revalue up to its ATH of $368 of 791%.
Its behavior will therefore depend on the behavior of Bitcoin.
Dario Garcia, EFA
XTB Spain
