The Motley Fool

Should I buy Coinbase shares after the IPO?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businessman with his palm open containing a hologram saying 'Why Invest In Cryptocurrency?'
Image source: Getty Images.

Coinbase (NASDAQ: COIN) shares made their debut on the tech-focused NASDAQ stock market last week. Given the cryptocurrency boom, it’s hard not to get sucked in by this particular initial public offering (IPO).

I normally don’t buy stocks at IPO or straight after due to lack of transparency and volatility. In fact, I’ve written about the four things I’d consider before buying in to an IPO, which can be extended to Coinbase shares.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

For now, I’ll be watching the stock closely. But here’s my take on the company.

What does Coinbase do?

Coinbase is a cryptocurrency exchange where investors can buy, sell and hold the digital assets. It earns most of its money by charging a fee per crypto transaction.

The company was founded in 2012 and since then it has grown phenomenally. What started off with Bitcoin has evolved. Customers now have access to over 90 different cryptocurrencies through the platform.

Coinbase serves three types of customers. These include retail users, institutions and ecosystem partners. I’m not surprised that it has 43m retail users. But I was encouraged to see that it has 7,000 institutional clients. These include hedge funds and money managers. I guess the more companies adopt cryptocurrencies, the number of institutional investors using Coinbase is likely to increase.

The company provides ecosystem partners the technology and services for them to develop applications that use cryptocurrencies. This makes sense to me, as it builds Coinbase’s credibility in its sector.

The financials

The company has been around for almost a decade. The boom in cryptocurrencies means that Coinbase is generating revenue and profits. In fact in 2020, it achieved $1.3bn in sales and net income of $322m.

But I think it’s worth highlighting that in the previous year, the company made a $30m loss. This may mean that profitability could be volatile, especially as it operates in a young asset class such as cryptocurrencies.

Even CEO and co-founder Brian Armstrong has said that investors can “expect volatility” in Coinbase’s financials given “the price cycles of the cryptocurrency industry”. Here, I’ll read between the lines and take this as a warning that investors should be able to stomach the potential volatile nature of Coinbase shares.

Armstrong has also highlighted that the company “may earn a profit when revenues are high and may lose money when revenues are low”, but its “goal is to roughly operate the company at break-even, smoothed out over time”.

I guess this is another warning to investors to avoid getting comfortable with the idea of increasing or stable profitability. The idea is to grow the company, but at the expense of profit-margin growth. For this reason, I’m only watching Coinbase shares for now.

Other risks

I like that Coinbase is making cryptocurrencies widely available to investors, but the stock does come with some risk.

The US has announced that it’s looking to increase regulation in the cryptocurrency market. Turkey has also banned any payments for goods and services using such digital assets. This could impact Coinbase shares.

I’m not comfortable with buying the stock. I’ll wait to see what further announcements it releases as a public company before dipping my toe in.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Nadia Yaqub has no position in any of the shares and cryptocurrencies mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.