Trading in Coinbase stock (NASDAQ: COIN) started yesterday . . .
Closing at $328 per share after the IPO. And now you’re probably wondering . . .
“Is Coinbase stock a buy . . . sell . . . or HODL?”
Unfortunately, you already missed out on 1,091% Coinbase Pre-IPO profits. Yet there’s still time for you to BUY these other crypto stocks – BEFORE they go public.
Let’s dig into Coinbase – now that shares are trading.
What is Coinbase? It’s the leading cryptocurrency exchange. The company allows individuals and institutions to buy and sell cryptos including Bitcoin, Ethereum and Litecoin. And it benefits from the rapid growth of the $2 trillion crypto market.
The reason to BUY Coinbase is simple.
The company is the #1 cryptocurrency exchange in the U.S. The company generates 76% of revenues from American clients.
Coinbase holds 11% of the total crypto assets – totaling more than $223 billion at the end of March. Those assets more than doubled in recent months – as the price of Bitcoin, Ethereum and other digital currencies rise.
Coinbase earns revenues from a 0.5% transaction fees on all trades. And it’s reflected in the company’s revenues.
Coinbase is also in incredibly profitable. In the first quarter the company expects profits between $730 – $800 million – suggesting a net profit margin of +40%. That’s very rare for a tech stock going public.
At the current share price Coinbase has a $85 billion valuation. Based upon the first quarter run-rate . . .
This means shares are trading at 12 times annualized sales – and 28 times earnings.
The bull case for Coinbase is that the stock is cheap – compared with its growth.
Plus, experts including formed hedge fund manager Mike Novogratz say the entire crypto market could increase 10 times to reach $20 trillion in assets. If that happens – Coinbase will be a leader in this booming market.
That’s why analysts at MoffetNathanson just released a $600 price target.
The bearish case for Coinbase is far less optimistic. And it focuses on two main problems.
First, cryptos such as Bitcoin are extremely volatile.
Cryptos are at the height of the bull market. That’s good for Coinbase today – leading to record sales and profits.
Yet this is unsustainable if the price of Bitcoin crashes 50% – 80% – as it’s done every few years. If cryptos crash again, Coinbase will see a huge drop in its financial results. And the stock price will be punished.
Second, Coinbase’s business is based on transaction fees.
The company earns 90% of its revenues from transaction fees. The company typically charges 0.5% on every crypto trade. The crypto markets will likely see a “rush to the bottom” in terms of transaction fees as more companies enter the market.
That means the main Coinbase source of revenues could decline rapidly. The company can expect to earn less on every transaction in the future. And this creates risk if the company is unable to adapt its business model.
Some folks simply think Coinbase is a stock that you BUY today – and “Hold on For Dear Life.”
This view is taken by investors who believe that cryptos are going higher . . . and think the industry will expand from $2 trillion today to $10 trillion or $20 trillion.
Frankly, I’m always a little hesitant to buy a stock after it has gone up 10x. And that’s exactly what’s happened with Coinbase stock.
Last September – the stock was trading for $28 on the Nasdaq Pre-IPO market.
At $328 today the stock is up over 1,071% in just over six months. And it’s unlikely that Coinbase stock will jump by 10x to reach an $850 billion market value.
That’s why I’m focusing on NEW cryptocurrency stocks preparing to go public. Because the Coinbase IPO is bringing tons of attention to Bitcoin and other cryptos.
The extremely successful Coinbase IPO is encouraging these crypto stocks to go public.
Yours in Wealth, Ian Wyatt