Can Coinbase Turn Things Around in 2022?

With its stock trading close to all-time lows, crypto exchange Coinbase (NASDAQ: COIN) released their Q4 earnings last week to a curious Wall Street. At first glance, they made for good reading. Analysts had been expecting their EPS to come in at $1.89, but they delivered a 75% beat on that with a $3.32 print. Similarly, their topline revenue was also ahead of the consensus and up an impressive 327% year on year. 

These impressive beats were much needed, as Coinbase has struggled to stay attractive to investors in the face of rising interest rates and a dwindling appetite for high-risk stocks. Indeed, it was only last quarter that management was warning investors who were thinking about getting involved to make sure they had a long-term horizon if buying Coinbase shares. As part of last week’s earnings release, management predicted that their retail monthly transaction user numbers, as well as their total trading volume during Q1, will be lower than previous quarters. The softness, if not the volatility, seen across the cryptocurrency market in recent months is to blame here, with the market cap of the total crypto market down about 20% this year alone. 

Silver Linings

Still, there were some positive metrics for the bulls to focus on. Net income doubled to $840 million in Q4 compared to Q3 and was up almost 5x compared to the same quarter last year. However, as management summed up in their letter to shareholders, “we enter 2022 with even more unknowns, which makes our business all the more difficult to forecast.” They added that global macroeconomic headwinds as well as unpredictable crypto asset prices, rising interest rates, and inflation will all have to be navigated successfully if Coinbase shares are going to end the year higher than where they started. 

At the moment, that’s a battle they’re losing, as shares are currently trading down about 25% from where they started this year. To be sure, that’s an improvement on the 40% drop they were feeling coming into last week’s earnings, but there’s a lot of work to be done to get a new uptrend started. Investors getting involved will have to weigh up the near-term headwinds against the longer-term potential. 

Speaking to the latter point, it has to be noted that the company is on the verge of crossing 100 million verified users, with well over $500 billion being traded in total quarterly volume. The total crypto market cap has grown almost 20 times since 2018, a trend that is not due to change for some time yet. From a cash point of view, they ended 2021 with more than $7 billion in cash and cash equivalents, more than enough to weather any near-term volatility that might send shares lower. 

Solid Progress

There has also been solid progress with crypto’s development as a respectable asset class that can be bought and sold like the more traditional assets and bonds. To this end, the company made the point during last week’s release that “on the institutional side, a major theme throughout 2021 was the adoption by a broader range of clients seeking to engage with crypto – beyond asset managers and financial services firms to corporate treasuries and institutional allocators.” This is another trend that bodes well for the crypto market's future, and as a result, Coinbase’s. 

There are not many voices left out there who are calling crypto a fad, and unless you’re one of them, it has to be acknowledged that an exchange will always be needed for crypto to be traded on. Coinbase has the massive advantage of being the first mover here, and despite having had to watch their shares drop more than 50% since last November, they’re still growing revenue in the triple digits.

Those of us getting involved might have to pinch our noses for a while, but there are plenty of reasons to think that Coinbase will be trading higher in 5 years' time than it is today. If you’re an investor and not a trader, that’s all that really matters.