The Rebound In Coinbase Is On

Now It's Time To Buy Coinbase

Coinbase NASDAQ: COIN was one of the most hyped IPOs of the first half of 2021. Coinbase was also one of the most disappointing IPOs of 2021. While technically not a standard initial public offering, the company's direct listing was eagerly met by retail investors but did not result in the massive gains that were expected. The salient point now is that the early holders of the stock, the ones who bought during the private listing or earlier, appear to be done with their selling and the rebound in price action is on. Price action in Coinbase began moving higher in the week ahead of the second-quarter earnings report and is confirming a major reversal right now.

Coinbase Blows Past The Consensus Estimates

The only thing that needs to be said about Coinbase’s second-quarter report is “wow”. The company reported $2.23 billion in net consolidated revenue for a gain of 1098% over last year. The results beat the consensus by 1800 basis points and were driven by robust gains in both reporting segments. Rising demand among retail and institutional clients drove trading volume to $462 billion which is good for a 37% sequential increase and a 1500% increase over last year. On a segment basis, institutional trading volume increase by 1550% while retail trading volume increased only 1200%. 

In terms of users, Coinbase reports over 68 million verified users with 8.8 million monthly transacting users during the second quarter. That’s up 44% sequentially and a root cause of revenue strength. Moving down the report, the company also reported robust margin expansion due to revenue leverage and the control of fixed costs. On a GAAP basis, the $6.42 in earnings corrects a loss posted in the Q1 period and more than doubled the consensus estimate. The analysts had been expecting closer to $2.58 in earnings which in and of itself would still be pretty strong. On an adjusted basis, EBITDA of $1.15 billion is up 2.6% sequentially and 1785% over last year and these are not results to be ignored. The cryptocurrency market is still in its infancy, there may be volatility on a quarter-to-quarter basis but the long-term trend is undoubtedly higher.

Coinbase did not give any formal guidance for the coming quarter but did give us an update on monthly transacting users and trading volume. Monthly transacting users fell to 6.3 million or down roughly 25% to drive 57 billion in monthly transaction value. The decline is attributed to volatility and pricing in the crypto-currency market but that weakness should be passing. Bitcoin as well as Ethereum and the pantheon of altcoins have all been moving higher over the past few weeks. In regards to the individual cryptocurrencies, Coinbase says interest in Bitcoin is subsiding while activity in Ethereum and the altcoins are on the rise. We are not surprised to hear this as Ethereum is deep into the ETH2.0 upgrade and on track to become the world's number one cryptocurrency network.

The Analysts Still Like Coinbase

The analysts are bullish on Coinbase and getting more bullish by the day. We've only seen one major sell-side report in the wake of the earnings release but the trend over the last few weeks it's positive. The consensus estimate for share price has fallen somewhat in the last few weeks but that is due to an influx of new coverage with price targets below the prior consensus. Aside from that, the trend of revisions is upward with the high price target above $400 and the consensus estimate of $362. The consensus is worth about 35% upside.

The Technical Outlook, Coinbase Is In Reversal

Shares of Coinbase confirmed a bottom near the $220 level over the past few months and are now moving higher. More recently, price action moved up to the $260 resistance level and has broken through. Since then, support was re-tested and confirmed at $260 with early action moving higher in the wake of the earnings report. Assuming price action continues to move higher we expect to see this stock move up to the $320 range at least.