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Coinbase shares: should I buy now?

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A depiction of the cryptocurrency Bitcoin
Image source: Getty Images.

Coinbase (NASDAQ: COIN) shares made their debut through a direct listing on 14 April. This was a landmark event for crypto enthusiasts around the globe. Digital currencies like Bitcoin have been getting a lot of attention in the last couple of years. 

In the UK, British finance minister Rishi Sunak recently spoke about Britcoin, a planned central bank-backed digital currency. However, there is no concrete news about how that would be implemented. For now, I would like to focus my analysis on the only publicly listed cryptocurrency exchange in the world. 

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Why are Coinbase shares popular?

Coinbase is a cryptocurrency exchange platform. Investors can buy and sell cryptocurrencies like Bitcoin and Ethereum. The company derives most of its revenues from fees charged to its customers for using its platforms. It caters to retail investors as well as institutions. 

The company was founded in 2012. It’s unique since it is a remote-only company. The company does not have a headquarters. The company has got to fame within a short period of time. It was able to grow its customer base to over 50m users. 

Coinbase went public with a direct offering. This meant the company did not raise cash by selling new shares. Instead, the existing shares were sold directly to investors. Companies save money on direct offerings as there are no intermediaries involved. However, this type of listing can be successful only for very popular companies. Some of the leading companies to follow this route are Slack, Spotify, and Palantir

Financials

The company’s revenues jumped from $533.7m in 2019 to $1.3bn in 2020. The company was also able to achieve the remarkable feat of being profitable. It reported a net profit of $127.5m compared to a net loss of $30.4m in 2019.

The price and trading of Bitcoin currency have a direct correlation with the company’s financial results. This is evident since the Bitcoin price reached an all-time high of over $63,000 and the Coinbase’s revenue also soared. Of course, past performance is not an indication of future results. More recently in the first-quarter earnings estimate given by the company – the total revenue was approximately $1.8bn. It has easily crossed the full-year 2020 revenues. Net income is approximately $730m to $800m. 

Risks to consider in Coinbase shares

Cryptocurrencies are very volatile. The use of cryptocurrency is a debatable topic. It is too early to tell whether  these currencies will be used in our daily activities in the long term. Due to the hype and FOMO (fear of missing out), the trading is very high. If the regulatory rules change, however, then trading might come down. This would have a negative impact on the company’s earnings.

Looking into the valuation, Coinbase stock is currently trading at a price-to-sales ratio of about 30. Even if I consider the strong growth, the stock is not cheap. 

Final view

I like the company’s strong revenue growth. Blockchain as a technology is very promising. A lot of big banks are considering investing in this sector. However, I feel that the stock is not a value buy. For now, I am happy with another stock I reviewed recently. 

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Bitcoin, Slack Technologies, and Spotify Technology. The Motley Fool UK owns shares of Palantir Technologies Inc. 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.

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