Full Coinbase analysis
While the company has made solid progress positioning itself as a safe and reliable place to buy and sell cryptocurrency in an industry with risky security practices, it lacks an economic moat. Rather, it has carved out a niche by positioning itself as the leading exchange in the US, providing a valuable service in an unregulated and volatile market.
Where to bet with crypto UK is mostly generated through trading activity, which creates direct exposure to crypto prices and a highly cyclical business (in 2022, the company saw its revenues fall 59% from the prior year). To reduce volatility and increase predictability, Coinbase is focusing on its subscription and services business and investing heavily in the infrastructure needed for further institutional adoption.
Another important source of revenue is the stablecoin USDC, which has grown to a market capitalization of $75 billion and provides interest income that is not directly linked to crypto prices. Miller believes USDC will play a critical role for Coinbase going forward as the company strives to diversify its revenue stream away from volatile cryptocurrency trading.
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The stock’s price has risen rapidly in the past month, but its valuation remains at lofty levels. We think the stock will likely struggle to live up to its valuation in the near term. For that reason, we maintain our Underweight rating on the stock. For more on our investment thesis and an updated forecast for Coinbase’s profitability, check out our full report.