Today we have a moderately speculative and somewhere even conservative idea: take shares of the Coinbase cryptocurrency exchange platform (NASDAQ: COIN), to make money on the growth of this business.
Growth potential and validity: 21,5% behind 14 Months; 48,5% for two years; 20% per annum during 7 years.
Why stocks can go up: they are unreasonably cheap relative to the success of the company.
How do we act: we take shares now by 229,81 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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What the company makes money on
This is a cryptocurrency exchange platform.. We talked about the company's business model in our Coinbase review ahead of its DPO. The main thing for us: company over 80% receives revenue from commissions from customer activity. Significantly less money, slightly more 10%, give her extra services, and the rest 4% gives independent trading of crypto-currencies.
Arguments in favor of the company
Fell - but for what? Since November, the company's shares have fallen sharply.: from 357 to 230 $. The current share price is even lower than their DPO price in 250 $. There is no justification for such a fall.: the financial performance of the company is miraculously good, it has a colossal total margin - 40% proceeds. It also costs reasonable money.: P / E — 23,5, a P / S about 9. For a high-margin business, Coinbase is unreasonably cheap. So,, you can take shares based on a rebound.
opportunistic racing. The fall in the company's shares is largely due to the volatility of bitcoin, which accounts for a significant share of trading on the Coinbase platform. But it's worth noticing, that the number of people in the United States is steadily growing, wishing to invest in cryptocurrencies. So I guess, that the trading volume on the Coinbase platform will grow again soon. AND, probably, the main influx of activity will be provided by institutional investors, who so far know only that about the cryptocurrency market, that "you can make very good money there".
At the same time, dishonest evangelists of the crypto industry are successfully promoting the idea, that “cryptocurrencies are a completely legitimate financial instrument and a good, a reliable type of asset for holding money". Mass disappointment in cryptoinvesting has not yet happened - and, probably, far from it. This topic is new and little researched., while greed and high inflation will push banks and funds to take on higher risks. And this will increase the trading volume on the Coinbase site..
These guys know, what they do. Coinbase is trying to grow and diversify its business, reducing the share of the overly volatile exchange business in the revenue structure, - in particular, planning to popularize crypto derivatives among retail investors.
The path to full diversification is long, and so far the company is very dependent on jumps in activity in the crypto markets. But I think, that in the long run their chances of success are very high.
Space for extortion. A share in the company may well be acquired by some activist investor, who will launch a campaign against Coinbase management demanding, say, pay shareholders if not quarterly, then at least one-time large dividends. Have an opinion, that you can get one-time payouts from Coinbase in the area 10 $ in year, which would give approximately 4,34% per annum to the current share price, especially since they, in fact, trample on the spot.
Well, or such an investor may well lead the company to sale. Here, Really, has its own subtleties, but the very question of management actions for the benefit of shareholders can have a very positive effect on the company's quotes. The main argument in favor of generous payments from the company to shareholders is that, that this business generates growing profits, but it doesn't affect the shareholders.: share price below not just its all-time high, and even the prices of her DPO.
Strictly speaking, introduction of dividends, even one-time, but tangible, will be in the interests of shareholders-owners, if only because, what's in the usa tax on dividend income slightly below payroll tax. It is more profitable for Coinbase management to pay one-time dividends to themselves and other shareholders, rather than just raise your wages.
What can get in the way
Continental blockade. The company entered the stock exchange through DPO and does not adhere to the progressive left-liberal agenda, at least in its radical form. This may explain the treadmill of stocks in the face of objectively excellent financial performance..
Probably, they are implicitly ostracized as an ESG lobby, and institutional investors. The first - for "misunderstanding of the acuteness of the current political moment", the second - just out of harm - for, that they entered the stock exchange without paying for the IPO and setting a “bad example” for other potential issuers. If I'm right, then Coinbase stock may stagnate indefinitely, even if the company continues to set records for revenue and profit.
Blackboard. The management of the company has a majority in voting - due to the presence of a special class of shares. And that means, what, probably, potential investor-activist campaign will bog down like the German Army's "Spring Offensive" in 1918. Coinbase management clearly introduced two classes of shares for the wrong reason, then to succumb to the blackmail of activists.
Also, in theory, the company’s management may refuse to sell Coinbase at an affordable price in the hope of “building a crypto empire”. The option is very likely: the company is profitable and therefore its management has money for projecting, and there is no motivation to sell the company.
Long road to Dune. The path of diversifying the company's income will take a very long time, and should be ready, that sometimes Coinbase quarterly reports will disappoint us: customer activity on the company's platform can experience not only ups and downs, but also recessions. And others, more stable sources of revenue for Coinbase, for example subscriptions and services, still don't give that much money. Moreover, regulators put spokes in the wheels of companies and hinder the introduction of credit and structured products..
Also, the hype in the field of cryptocurrencies and fintech contributes to inflating the cost of startups in their respective fields - so Coinbase's spending will be very large.. This, By the way, another argument against dividends for company management.
It will be hot. Regardless of the success of the company, the price of its shares correlates well with bitcoin, which means, Coinbase stock will be very volatile. Also, in the medium term, the price of the company's shares will be negatively affected by the increased interest of the American tax authorities in the crypto income of US taxpayers.. In theory, this will contribute to the creation of a negative news background around cryptoinvesting., which can drop Coinbase quotes and even slow down the growth of activity on its platform.
What's the bottom line?
Shares can be taken now by 229,81 $. We already had a successful investment idea for the company, which gave almost 40% in a few months. Given the success of Coinbase despite the volatility of cryptocurrencies, counteraction of regulators and other obstacles, I think, that the forecast for the company's shares can be improved:
- wait 280 $. Think, what is the maximum waiting time 14 Months. This is a very humble goal.: the specified target price is a simple recognition of the company's existing achievements, not a credibility, issued "because, which is promising";
- wait for growth to 342 $. Think, what is the best way to navigate 2 of the year: during this time, crypto investing will experience another boom, which will lead to both an increase in trading on the Coinbase platform, and increased attention to its shares;
- hold shares for many years. Actually, if you have already taken these shares with an eye on long-term investment, now you can buy them.
But, despite generally positive business performance, you should keep in mind the influence of non-market factors on quotes: an unfavorable position towards the company on the part of ESG investors and banks, as well as the unpredictability of the dominant shareholders of Coinbase. These factors can affect the value of the company's shares in the worst way.. This needs to be understood and accepted., so you don't get upset, that stocks are marking time, despite steady progress in operational metrics.
