Coinbase's stock market debut at $381 a share has translated in as much as 50% loss for early investors, but the stock direction appears to have somewhat reversed in the run up to Q4 results on hopes of a positive outlook for the company.
Cryptocurrency exchange platform Coinbase [COIN] is expected to report a 45.8% increase in revenue from the previous quarter and a rise of 14.2% in earnings when it releases its fourth-quarter and full-year 2021 numbers on 24 February.
Coinbase’s shares have dropped a long way from its April 2021 IPO price of $381, but could end up on the path to recovery if the company posts improved quarterly key metrics including higher transaction volumes and growth in the number of monthly transacting users.
According to Yahoo Finance, a consensus of Wall Street analysts forecast the company to generate $1.91bn in revenue for Q4, a significant rise compared with the $1.31bn delivered in the third quarter. They also estimate quarterly earnings per share (EPS) to come in at $1.85, an improvement on the $1.62 per share posted in Q3.
Cofounder and CEO Brian Armstrong (pictured above) was bullish on crypto and its growth prospects at the Q3 earnings call.
“We are seeing really strong and accelerating pace of crypto adoption globally…we actually shared some insights on the pace of this adoption and how it mirrors that of the internet 25 to 30 years ago. And we looked at some third-party research, which indicates that crypto users have doubled in the first half of this year, now over 200 million people, and that growth is accelerating,” he said during the earnings call.
“And we looked at some third-party research, which indicates that crypto users have doubled in the first half of this year, now over 200 million people, and that growth is accelerating” – Coinbase CEO Brian Armstrong
Coinbase shares have disappointed since going public
Investors who purchased Coinbase shares shortly after the company went public last April will be sitting on a fall of more than 50%. The share price is inherently linked to the performance of digital assets such as bitcoin and ethereum. Even the company has admitted the unpredictable nature of its business.
“As our year-to-date results have clearly demonstrated, our business is volatile,” the company said in its Q3 shareholder letter.
The stock has declined by 30% in the year to 22 February 2022, whereas the prices of bitcoin and ethereum have fallen by 17.3% and 28.3%, respectively. In comparison, the S&P 500 dropped by 9.6% over the same period.
The largest crypto exchange in the US has been reducing its dependence on the leading digital assets. In its third quarter, bitcoin accounted for 21% of total transaction revenues, a decline from 26% in Q2, while ethereum made up 22% of transaction revenues, a fall from 26% posted in the second quarter.
The company missed Q3 analysts’ estimates
Coinbase missed analysts’ forecasts in November after it posted weaker than expected revenue for the third quarter, coming in at $1.31bn compared with the consensus estimate of $1.57bn.
In general, Coinbase experienced a weaker third quarter, with monthly transacting users falling to 7.4m from 8.8m in Q2. Trading volume also declined to $327bn from $462bn seen in the previous quarter, though assets on the platform improved to $255bn from $180bn in the prior three months.
The company tried to remain upbeat during the release of its third-quarter figures, saying in its shareholder letter for the period: “Coinbase is not a quarter-to-quarter investment, but rather a long-term investment in the growth of the cryptoeconomy and our ability to serve users through our products and services. We encourage our investors to take this point of view.”
Coinbase a ‘generational’ company
According to MarketScreener, analysts are bullish on Coinbase, with 10 out of 22 rating the stock as a ‘buy’. The shares have an average target price of $348.85, representing a potential upside of 97.4% from the current level.
Loup Funds analyst Gene Munster said in a recent video that he believes Coinbase has the potential to become a “generational” company that will become a household name in the next 10 years.
“I think Coinbase has this ideal balance between being in front of a massive curve to sleeping well at night, knowing that they make money,” Munster said.
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