After a euphoric listing and highs of $430, Coinbase (COIN) stock witnessed a sharp correction and consolidation. This was largely in sync with the price movement in Bitcoin and other cryptocurrencies.
However, the Coinbase stock has surged since the beginning of October 2021. It seems very likely that the uptrend will sustain. I am bullish on the cryptocurrency trading platform, and I believe that solid revenue and cash flow growth will take COIN stock higher. (See Analysts’ Top Stocks on TipRanks)
In August 2021, Binance, a leading cryptocurrency exchange, pointed out that there are 300 million crypto users globally. However, that’s only 4% of the world population. There is ample scope for penetration in the coming years, and that’s a big reason to be bullish on Coinbase.
It’s also worth mentioning that Tim Cook recently revealed that he owns Bitcoin. As big influencers and entrepreneurs diversify their portfolios, cryptocurrency will be set for broader acceptance.
Robust Top-Line and EBITDA Growth
Coinbase has continued to benefit from wider crypto adoption and higher trading volumes.
For Q3 2021, the company reported revenue growth of 330% to $1.2 billion. For the same period, the company’s adjusted EBITDA surged by 402% to $618 million.
Beyond revenue growth, the following factors are catalysts for stock upside.
To begin with, for the first nine months of 2021, Coinbase reported operating cash flow (excluding custodial funds due to customers) of $2.8 billion. The company is already positioned for annual operating cash flow in excess of $3.5 billion. Further, as of September 2021, Coinbase reported cash and equivalents of $6.4 billion. The company has ample financial flexibility to pursue aggressive expansion and diversification.
Secondly, as of Q3 2021, retail trading volume was $93 billion. On the other hand, institutional trading volume was $234 billion. With more institutional investors diversifying into cryptocurrency trading, there is ample headroom for volumes growth.
Thirdly, Coinbase’s CEO recently opined that non-fungible tokens could be as big or bigger than cryptocurrencies. Coinbase also plans to have its own NFT marketplace. In the next few quarters, users will be able to trade digital art and other items. Even if NFTs are half the size of the cryptocurrency market, it’s a significant growth opportunity for Coinbase.
Another point worth noting is that as of Q3 2020, the company reported 50% of trading volumes in Bitcoin and Ethereum. As of Q3 2021, the trading volume in these two coins declined to 41%.
As more cryptocurrencies with strong use cases become listed, trading volume will become increasingly diversified. As of Q3 2021, Coinbase had 103 assets for trading and 158 assets for custody in the company’s platform.
International expansion is another factor that’s likely to help in sustaining robust growth. India is already among the biggest crypto markets in terms of user base.
Coinbase is setting up an office in India and planning to recruit hundreds of engineers. Additionally, the company is looking at start-up acquisitions.
Considering the company’s financial flexibility, Coinbase is well-positioned to increase market share by pursuing acquisition-driven growth.
Wall Street’s Take
Turning to Wall Street, Coinbase has a Strong Buy consensus rating, based on 13 Buys, two Holds, and one Sell assigned in the past three months. The average Coinbase price target of $398 implies 19.9% upside potential.
Bottom Line
Coinbase seems like a cash flow machine, and as monthly user transactions swell, it could see ample free cash flow upside.
For Q3 2021, the company also reported subscription revenue of $145 million, which was higher by 41% on a quarter-on-quarter basis. Growth in subscription revenue will further boost margins and cash flows.
Overall, COIN stock looks like an attractive pick for the long term. With the cryptocurrency market still at an early stage of adoption, there will be ample opportunities for growth and diversification.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
