The fortunes of Coinbase are as volatile as the cryptocurrencies that clients trade on its platform. Third quarter results came in worse than expected after the zeal cooled down unexpectedly. The stock fell as much as 10 percent on Wednesday before crawling back from that lost ground.
The group has emerged as one of the most important places in the US for buying and selling digital tokens like bitcoin and ethereum. It makes the bulk of its revenue from fees collected every time cryptocurrencies virtually change ownership.
That business model made shares in Coinbase attractive to crypto-curious regulated investors, preventing them from plundering directly with the tokens. The group went public in April and now boasts a market value of $ 71.5 billion,
Trading volumes fell nearly a third in the last quarter compared to the previous period to $ 327 billion. The number of “retail monthly transaction users” – who trade at least once a month – was 7.4 million, down from 8.8 million previously.
Coinbase remains highly profitable. It generated a net income of $ 406 million on revenue of $ 1.31 billion. But that does not justify its high valuation. The stock trades at 49 times forward earnings, compared to a multiple of 29 times for Nasdaq and 25 times for Intercontinental Exchange. Its valuation is baking in very rapid growth. This is far from guaranteed, given the unpredictability of the demand for cryptocurrencies.
The company promised better figures for the fourth quarter thanks to the rally in bitcoin and other digital assets. Coinbase has discussed its plans to launch a marketplace for non-fungal tokens (NFTs) as it appears to be making money on the rise in digital collectibles.
Coinbase follows a strategy based on the unstoppable momentum of the crypto-revolution or chasing fads, depending on your point of view.
No fewer than 7,248 cryptocurrencies are currently being traded, according to coinmarketcap.com. This indicates the relatively low cost of creating tokens rather than their growing utility.
A less divisive observation is that competition has grown like mushrooms in recent years. Robinhood, PayPal and Squarenow offer crypto trading. This is in addition to services from competitive exchanges including Binance, Gemini, Bitstamp and Kraken.
Investors can also gain exposure to bitcoin through dedicated ETFs. Custody banks are making efforts to provide crypto services to institutional clients.
All of these factors will weigh on the fees that Coinbase may charge. Its business, like bitcoin, is a crowded trade.
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