Coinbase Stock Is Down 70% This Year. Is It Time To Buy?

Coinbase stock (NASDAQ
NDAQ
: COIN) has declined by almost 70% year to date in 2022 and remains down by almost 80% from all-time highs seen in November 2021, trading at levels of around $75 per share. There are a couple of factors driving the sell-off. Firstly, investors have been reducing their allocation to growth stocks and futuristic names this year, with the U.S. Federal Reserve turning increasingly hawkish, amid rising inflation. Moreover, cryptocurrency prices have also seen a sharp decline, with bellwether crypto bitcoin down almost 35% year-to-date and by over 55% from its 2021 highs. Lower cryptocurrency prices typically translate into lower transaction volumes and impact active user numbers for exchanges such as Coinbase. Coinbase’s results over Q1 2022 were also weaker than anticipated, with revenue declining by 27% from a year ago. The company’s retail monthly transacting users declined 20% versus last year to 9.2 million, and total trading volume also fell 45% to $309 billion.

So, is it time to buy Coinbase stock following this big sell-off? The stock currently trades at just about 4x our consensus 2022 revenue, which is not exactly a rich valuation for a highly profitable and futuristic stock with solid long-term earnings potential. Crypto prices are subject to multi-year cycles (two to four years, per Coinbase) and the going could be tough for the company in the near term as investors will likely prioritize productive, cash flow-yielding assets, over cryptos in a rising interest rate environment. However, the company has adequate liquidity to ride out a downcycle, with its cash and cash equivalents at the end of Q1 2022 standing at $6.1 billion. Coinbase is a market leader in the cryptocurrency space, which has the potential to be among the most disruptive technologies of our time. The company has built a solid reputation for transparency, security, and compliance, and this could make it the go-to platform as bitcoin and other cryptos gain traction. Although Coinbase posted a loss over Q1 as cryptocurrencies entered a bear market, it was actually extremely profitable over 2021, when cryptocurrencies surged, with net income standing at roughly $3.6 billion and net margins standing at a solid 46%. This indicates that the company’s economics should pick up meaningfully as the crypto cycle reverses.

We value Coinbase stock at $150 per share, which is significantly ahead of the current market price of $75 per share. See our analysis on Coinbase Valuation: Expensive or Cheap? for more details on Coinbase’s valuation. Also, check out our analysis on Coinbase Revenues: How Does COIN Make Money? for details on the company’s key revenue streams and how they have been trending.

With stock prices falling precipitously across sectors, we may be heading toward a bear market for the first time since March 2020, when the Covid-19 outbreak triggered a market crash. We capture key trends in the Dow during and after major market crashes in our interactive dashboard analysis, ‘Market Crashes Compared.’

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