Coinbase Global, Inc.$Coinbase Global, Inc.(COIN)$ has surged 82.7% year-to-date to close the last trading session at $64.67. The stock is trading above its 50-day and 200-day moving averages of $51.68 and $60.48, respectively. However, I think it might be wise to be skeptical about this rally because of the reasons explained.
The fintech company provides end-to-end financial infrastructure and technology for the global crypto economy. The company offers financial accounts for retail crypto users, a liquid marketplace to institutions for crypto transactions, and technology and services for ecosystem partners.
Although COIN’s revenue has exhibited an 82% CAGR over the past three years, and its net assets have increased at a 234.8% CAGR over the same time horizon, the view from the windshield couldn’t be more contrasting to the image in the rearview mirror.
In addition to battling stronger-than-ever macroeconomic headwinds due to increasing interest rates, the cryptocurrency ecosystem has been rocked by scandals in fiscal 2022, such as the depegging of $LUNA and the collapse of FTX, which drove additional credit-related bankruptcies. These events have exposed systemic risk to the ecosystem and have drivenpolitical will favoring regulation.
Let’s closely examine COIN’s fundamentals:
Dismal Financial Performance
For the fiscal year that ended December 31, 2022, one that was tempestuous for the cryptocurrency ecosystem, COIN’s net revenue declined 57.2% year-over-year to $3.15 billion. Due to the ongoingcrypto winter, a 65.5% year-over-year decrease in total transaction revenue to $2.36 billion was mildly offset by a 53.5% year-over-year increase in total subscription and services revenue to $792.6 million.
Notwithstanding consistency with its outlook, COIN reported an adjusted EBITDA loss and a net loss of $371.40 million and $2.63 billion, respectively, compared to the adjusted EBITDA of $4.09 billion and net income of $3.62 million during the previous fiscal.
Poor Profitability
Although COIN’s 100% trailing-12-month gross profit margin is significantly higher than the industry average of 64.05%, its trailing-12-month EBITDA and net income margins of negative 60.32% and 83.35%, compared to the respective industry averages of 21.28% and 27.46%, despite itsheadcount reduction and ongoing cost management effortsis a major cause for concern.
On the capital discipline front, COIN’s negative trailing 12-month ROCE, ROTC, and ROTA also fall significantly short of the respective industry averages of 11.17%, 5.01%, and 1.17%.
Bleak Analyst Estimates
Analysts expect COIN’s revenue for the first quarter of fiscal 2023 to decline 43.3% year-over-year to $663.80 million. During the same period, the company’s loss per share is expected to come in at $0.98 compared to $0.12 during the previous-year quarter.
For fiscal 2023, COIN’s revenue is expected to decline 10.4% year-over-year to $2.86 billion, while it is expected to report a loss of $1.67 per share. The company is expected to keep reporting losses over the next two fiscals.
Moreover, COIN has missed its consensus EPS estimates in three of the trailing four fiscals.
Stretched Valuation
COIN’s forward EV/Sales and EV/EBITDA multiples of 4.97 and 376.76 are exorbitant compared to the respective industry averages of 1.90 and 10.62.
As a result of the recent surge in its stock price, COIN’s forward Price/Sales and Price/Book ratios of 5.24 and 2.83 also compare unfavorably to the industry averages of 2.51 and 1.14, respectively.
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