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Investment Thesis
Coinbase ( NASDAQ : COIN ) reported a black Q1 poster that sent the stock swooning post-earnings. The market has been pricing in a disappointing show by CEO Brian Armstrong & team as it headed into its Q1 earnings. notably, COIN sprout had already been slashed 80 % off its November highs before its earnings passing. however, with yesterday ‘s batting order that came in well below the consensus estimates, the stock has continued its downdraft. COIN stock is trading about 18 % below yesterday ‘s close ( May 10 ) in pre-market as investors parsed its Q1 card.
We had not been optimistic about Coinbase ‘s dissertation since our inaugural article in February ( Hold rat ). We emphasized that Coinbase ‘s highly volatile transaction gross made it challenging to model its tax income and profitableness with assurance. Despite its efforts to diversify its tax income base, it ‘s still excessively early to impact its valuation meaningfully. We then revised our denounce in March to Buy, seeing a short-run counter-trend opportunity. however, we emphasized a price aim of $ 200 for the short-run opportunity. consequently, COIN stock hit our price prey before continuing its down spiral. Notwithstanding, our price military action analysis besides suggests that the marketplace makers have been trying to force a capitulation in COIN breed before forming a bottom. consequently, a inquisitive opportunity could emerge after a consolidation zone has been created. As a result, we revise our rate from Buy to Hold. We implore investors to bide their meter before adding far exposure to COIN stock.
The Street Couldn’t Model Coinbase’s Highly Volatile Revenue Base Accurately
Coinbase revenue (S&P Capital IQ)
Coinbase ‘s reliance on transaction tax income from chiefly its retail customers made it highly challenging to model its estimates accurately. As a solution, we were not surprised that Coinbase ‘s Q1 metrics came in well below the consensus estimates. For case, Coinbase reported tax income of $ 1.17B, down 35.3 % YoY in Q1. however, the consensus estimates had pointed to tax income of $ 1.49B, down 18 %. consequently, the miss was highly significant. It besides validated our former assumptions that it was excessively challenging to forecast its near-term tax income confidently. Coinbase had been selling its “ crypto-economy ” bullish dissertation to its investors and urged COIN stock bagholders to stay invested. Armstrong besides took the opportunity to address the crypto winter fear in the markets, as he accentuated ( edited ) :
Read more: Colin Jost – Wikipedia
We besides tend to see the down period as a big opportunity because we ‘re avaricious when others are fearful. We tend to be able to acquire great talent during those periods and others pivot, they get distracted, get discouraged. And so we tend to do our best cultivate in a down period. So ironically, I ‘ve never been more bullish on where we are as a company. And our thesis has been about moving away from good being a trade platform to enabling the entire crypto-economy. It ‘s very starting to work. The majority of our active users are now doing something other than trade. ( Coinbase ‘s FQ1’22 earnings visit )
We do n’t buy that thesis. Investors must understand the difference between holding the underlying crypto assets and investing in Coinbase. Coinbase ‘s tax income and profitableness are driven chiefly by its retail transaction gross. And if we ca n’t accurately model its tax income and profitableness, how do investors determine what Coinbase stock should be worth ?
The Market Is Pricing In A Loss For FY22
Coinbase MTUs (Company filings)
Coinbase transaction revenue QoQ change % (Company filings)
The growth in monthly transacting users ( MTUs ) has been trending down since 2021 ‘s massive growth. consequently, we think the market has been pricing in the implicit in weakness in its MTUs vogue. furthermore, the company guided far easing in its MTUs increase for Q2, as it expects to post lower MTUs than Q1 ‘s 9.2M. Given the doubt of its MTUs moderation, it has besides impacted the visibility of its transaction gross. As a leave, we could observe the significant QoQ volatility swings in its transaction tax income, as seen above. therefore, we continue to find it challenging to confidently value COIN stock, and Coinbase ‘s guidance corroborated our thesis.
Is COIN Stock A Buy, Sell, Or Hold?
COIN stock price chart (TradingView)
Read more: Colin Jost – Wikipedia
We revise our denounce on COIN stock from notional Buy to Hold. Readers who used our former short-run buy opportunity should have exited the trade wind as it reached our $ 200 price target. There ‘s no rationality to hold on to it for the long terminus. Notwithstanding, our price action analysis suggests that the market makers could be forcing a capitulation in COIN stock. As a resultant role, we believe that COIN stock could find an opportunity to consolidate before staging a potential short-run rally subsequently. We urge readers to wait patiently for the consolidation before adding exposure .
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