Is the Crypto Collapse Finally Over? Which Ticker to Look at First Crypto assets have seen a massive fall from their late 2021 highs. Coinbase Global (COIN) has fallen 78.5% year-to-date due to the highly uncertain macroeconomic environment. Despite its poor financials,...
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Crypto assets have seen a massive fall from their late 2021 highs. Coinbase Global (COIN) has fallen 78.5% year-to-date due to the highly uncertain macroeconomic environment. Despite its poor financials, the company remains bullish on its investments in decentralized finance and NFTs. However, given the unfavorable analyst estimates about COIN's financials, will it be wise to invest in the stock? Read on to learn our view….
Financial technology company Coinbase Global, Inc. (COIN) offers retailers the primary financial account in the crypto economy, a marketplace with a pool of liquidity for transacting in crypto assets for institutions, and technology and services that enable ecosystem partners to build crypto-based applications and securely accept crypto-asset payments.
The highly uncertain macroeconomic environment driven by the Fed's aggressive interest rate hikes and surging inflation has kept the stock market under pressure since the beginning of the year. All major crypto assets and shares of companies whose businesses are dependent on the crypto assets were not spared of the stress either.
Because of the uncertainties, investors have dumped the riskier assets and opted for relatively secure, less risky assets. Major cryptocurrencies bitcoin and Ethereum have corrected 58.2% and 71.8% year-to-date, respectively. The negative market sentiments and the rapid price declines of digital currencies have affected COIN.
On June 14, 2022, COIN announced that it would lay off 18% of its total workforce. COIN CEO Brian Armstrong in an email, said, "We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter and could last for an extended period. While it's hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment."
COIN's stock has declined 78.5% in price year-to-date and 78.1% over the past year to close the last trading session at $54.24. It is currently trading 85.3% below its 52-week high of $368.90, which it hit on November 9, 2021.
However, with the company working on improving operating efficiencies, it might withstand the macroeconomic headwinds better than other crypto-based businesses. COIN's revenues and earnings have taken a hit in the first quarter ended March 31, 2022, as total trading volume plummeted with retail traders trading less due to rapidly falling prices of digital currencies.
COIN is investing heavily in products such as Coinbase Wallet and Coinbase NFT to fuel its next growth phase. While traders mainly use crypto assets for quick financial gains, COIN hopes its products will create a system where crypto can be used for real transactions.
Here's what could influence COIN's performance in the upcoming months:
Disappointing Financials
COIN's total revenue declined 35.2% year-over-year to $1.16 billion for the first quarter ended March 31, 2022. The company's operating loss came in at $554.46 million, compared to an operating income of $987.71 million.
Its net loss came in at $429.65 million, compared to a net income of $771.46 million in the year-ago period. Also, its loss per share came in at $1.98, compared to an EPS of $3.05 in the year-ago period. Furthermore, its adjusted EBITDA declined 98.2% year-over-year to $19.68 million.
Unfavorable Analyst Estimates
Analysts expect COIN's EPS and revenue for fiscal 2022 is expected to decline 153.7% and 48.5% year-over-year to $7.79 and $4.03 billion, respectively. Its EPS for fiscal 2023 is expected to remain negative.
Mixed Valuation
In terms of forward EV/S, COIN's 2.50x is 7.2% lower than the 2.70x industry average. Likewise, its 3.26x trailing-12-month EV/EBITDA is 64% lower than the 9.07x industry average. And the stock's 2.30x forward P/B is 111.8% higher than the 1.09x industry average. Also, its 3.01x forward P/S is 8% higher than the 2.78x industry average.
POWR Ratings Reflect Bleak Prospects
COIN has an overall D rating, equating to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. COIN has an F grade for Sentiment, in sync with its unfavorable analyst estimates.
It has an F grade for Growth, consistent with its poor financials.
COIN is ranked #127 out of 156 stocks in the Software Application industry. Click here to access COIN's ratings for Value, Momentum, Stability, and Quality.
Bottom Line
With the current uncertain macroeconomic environment, COIN is expected to face a slowdown in its business. The company's monthly transacting users (MTUs) and total trading volumes are expected to decline due to falling crypto prices and increased volatility.
However, the company believes that the current market conditions are not permanent, and its investments in other products will drive its growth once the volatility in the market declines.
Given COIN's disappointing financials and unfavorable analyst estimates, it could be wise to avoid the stock now.
How Does Coinbase Global, Inc. (COIN) Stack Up Against Its Peers?
COIN has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Software Application stocks with an A (Strong Buy) or B (Buy) rating, such as Rimini Street, Inc. (RMNI), Commvault Systems, Inc. (CVLT), and Open Text Corporation (OTEX).
COIN shares fell $54.24 (-100.00%) in premarket trading Wednesday. Year-to-date, COIN has declined -78.51%, versus a -19.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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