There’s no shortage of ways to play the cryptocurrency market, but if you would rather bet on the basket instead of individual next-gen currencies, you will eventually find yourself kicking the tires of Coinbase Global (NASDAQ:COIN).
The leading crypto-trading exchange hit the market at a reference price of $250 in April. Despite some ups and downs in its first three months of the market, it’s essentially back where it started. This is your ground floor opportunity to kick the tires of a popular crypto play. Let’s go over a few reasons Coinbase may be more special than you think.
1. Coinbase is cheaper than you think
A crypto exchange with a $53 billion market cap may seem pretty outrageous. Coinbase is a much smaller company than the banks and brokers commanding similar market caps and enterprise values.
You don’t find too many financial services companies fetching double-digit revenue multiples, but the math is a lot kinder than you might think. Growth is off the charts here. Revenue more than tripled through the second half of last year, accelerating to a jaw-dropping 845% year-over-year burst in this year’s first quarter. Its profitability is growing even faster.
Nearly half of its $1.6 billion in net revenue — $771.5 million — made its way down to the bottom line as net income. More than half of its revenue — $1.12 billion — found its way down to adjusted EBITDA.
It’s fair to say that the first quarter was a fluke with most cryptocurrencies shooting to the proverbial moon. However, if the first quarter’s performance were to hold up through the next nine months we’d be talking about nearly $3.1 billion in net income. Framing this in a way that will spawn countless double takes: Coinbase Global is trading at 42 times last year’s revenue, but it’s only fetching 17 times this year’s earnings if it can photocopy its first quarter through the rest of 2021.
2. Crypto traders have itchy trigger fingers
Coinbase Global had $223 billion in assets on its platform by the end of March. Those assets are owned by 56 million verified users across 100 different countries. Crypto traders don’t tend to be the “buy and hold” type, a shame when you see the long-term gains of the most popular cryptocurrencies. A whopping $335 billion in trades went through Coinbase in this year’s first quarter.
The sheer volume is impressive. The historically volatile digital currencies make traders less concerned about the trading fees that run roughly 1.5% for transactions on Coinbase’s flagship platform and many of its rival exchanges. It’s awfully tempting to own the top dog in a trading niche generating juicy margins on a whirlwind of trading volume.
3. The moat is mighty
The top dog is always vulnerable to potential disruptors, but Coinbase has a lot of neat things going on once you dig beneath the surface. A common knock on Coinbase is its high fees, but it also runs Coinbase Pro. Trading fees are much lower on Coinbase Pro, but it’s a bare-boned interface lacking the bells and whistles that you will find on the namesake platform. However, for those concerned about the fees on Coinbase, its less user-friendly sibling is there for bargain seekers.
Back to Coinbase itself, there are plenty of reasons to stick around once you set up camp on the leading exchange. Coinbase Rewards is a program that works with some crypto denominations. You can earn as little as 2% in crypto by just holding some stablecoins and tokens to as much as 6% if you either stake your crypto or make it available for Coinbase to lend out.
Coinbase recently announced that the 0.15% interest it pays on dollar-backed USD Coin (CRYPTO:USDC) will improve to 4% for folks willing to let Coinbase lend it out. It’s not a risk-free proposition, but in this low interest rate climate it will help it smoke out some traditional savers to its platform. The USDC stablecoin in the program won’t be covered by FDIC or SIPC insurance, but it is guaranteed by Coinbase. A 4% return backed by a $53 billion company sounds pretty good these days. Never underestimate the bag of tricks that Coinbase is working with here.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.