What the Smartest Investors Know About Coinbase

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Coinbase Global (Coins -1.57%), one of the most popular cryptocurrency brokerages and exchanges, has been on the minds of shareholders as a result of all the negativity surrounding the industry lately. Investors want to know more details about companies and stocks to determine whether they should buy, hold or sell more of their positions.

Everyone looking at Coinbase needs to know some important information to be better informed. Here’s what smart investors know about this leader Cryptocurrency Enterprises.

It depends on the trading activity

In the most recently announced results (for the third quarter of 2022, ended September 30), Coinbase generates the majority of its revenue, 63%, from transaction fees. It has 108 million users trading on the platform.

The good news is that when the market is bullish, as we have seen for most of 2021, Coinbase’s business thrives. The company posted net income of $3.6 billion on net revenue of $7.4 billion that year, the most profitable of any business. Rising crypto prices not only raise general interest, they also attract speculators looking to trade more.

But the opposite situation can seriously hurt financial performance. Through the first nine months of 2022, Coinbase’s revenue fell 52% year over year, and the company posted a net loss of $2.1 billion during that time. This helps explain why stocks have tanked.

Investors certainly want CEO Brian Armstrong to find ways to diversify revenue streams to create a more predictable business. This will be difficult given the volatile nature of the crypto industry as a whole, but Coinbase has a subscription and services segment that saw sales growth of 45% year-over-year last quarter. Its progress should be monitored. Coinbase’s subscription revenue is primarily driven by its USDC custody service. It also offers Coinbase One, which has a flat monthly fee of $30 for $0 transaction fees.

It’s dealing with crypto winter

Because Coinbase’s success today is dependent on driving higher trading volumes on its platform — from both individual and institutional investors — last year’s crypto market downturn had a severe impact on the business. A combination of high interest rates, macroeconomic weakness and several bankruptcies saw the overall industry lose nearly two-thirds of its value in calendar 2022.

The crypto market slump has crushed Coinbase’s business and stock price, but if the stock market slumps, big investment banks such as JP Morgan Chase or Goldman Sachs Don’t suddenly become unprofitable. And their shareholders won’t question the viability of their business model.

Throughout its history, however, cryptocurrency has largely been used only as a speculative tool. So it is prone to boom-and-bust cycles that move with the whims of investors. Only when there is real utility, and people start using decentralized applications in their daily lives, will the crypto industry show more stability. Then, more people will see a crypto market drawdown as an opportunity, not something to fear.

To ensure survival, Coinbase has cut its headcount, most recently laying off 20% of its workforce. The goal is The financial strength of the company is strengthened So if the crypto winter continues, it could become stronger on the other side.

It has a strong balance sheet

Coinbase shareholders should be confident that the company can withstand a prolonged downturn in the crypto market. As of September 30, 2022, the business had $5 billion in cash and cash equivalents on its balance sheet with only $3.4 billion in long-term debt. It’s a tough place to be.

and in the light FTX defeatArmstrong says his company is much safer than any offshore crypto-exchange operator because it doesn’t engage in risky behavior with client funds.

This will certainly strengthen Coinbase’s position in the industry, as its financials must be audited, and it follows the reporting rules of a US publicly listed company.

Management believes it will post an adjusted loss based on maximum EBITDA (Earnings before interest, taxes, depreciation, and amortization) of $500 million for the entire fiscal year 2022, which it can certainly manage given its financial condition.

“For 2023, we are preparing with a conservative bias and assume that current macroeconomic headwinds will continue and likely intensify,” management wrote in the third quarter 2022 shareholder letter.

By now, readers should be more familiar with Coinbase.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Coinbase Global, Goldman Sachs Group, and JPMorgan Chase Motley Fool has a revealing policy.


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