Shares of the cryptocurrency exchange Coinbase Global (NASDAQ:) have been under pressure ever since they began trading on Apr. 14, 2021 The stock is down more than 40% from its peak in April, and there are signs this weakness isn’t over yet.
COIN Weekly Chart.
But this bearish spell runs counter to the improving growth prospects for the largest cryptocurrency exchange in the U.S., and the first major cryptocurrency-focused company to go public. With interest from both individual and institutional investors in the digital coin , Coinbase is well positioned to benefit.
The San-Francisco-based company’s latest numbers further support our view that COIN stock is on a strong growth path, and it’s a good buy on weakness. In the , released last month, Coinbase’s total trading volume grew nearly 38% sequentially, even as dropped from its all-time high.
Institutional trading volume rose 47%, while retail trading volume rose 21%. Retail investors pay higher fees than institutional traders, and accounted for nearly 95% of Coinbase’s transaction revenue in the quarter. During the period, Coinbase added more assets for trading than in all of 2020. It now supports 83 assets for trading and 142 for custody.
Riding on this investment wave, Coinbase profitability soared. The company reported $1.6 billion in net income, more than double the $683.3 million consensus forecast predicted by analysts. Sales for the quarter rose $2 billion, also beating consensus estimates.
Cash Build-Up
This impressive financial profile ranks Coinbase among the few technology companies that were profitable from their first day of trading.
To deal with the uncertainties associated with the crypto market, Coinbase has built a $4-billion cash stockpile. The company stress-tests its balance sheet to ensure it has adequate funds on hand to prepare for a stricter regulatory regime, possible cyber-attacks or potential trading declines.
Despite this strengthening financial position, investors shouldn’t downplay the risks associated with investing in crypto assets. The Securities and Exchange Commission is investigating Coinbase over a lending program the company plans to market and has indicated it would sue the company over the offering, the Wall Street Journal reported earlier this week.
Coinbase co-founder and Chief Executive Brian Armstrong disclosed the dispute in a series of tweets late Tuesday. He called the SEC’s actions “sketchy” and referred to “intimidation tactics behind closed doors,” saying other crypto companies are able to offer such programs.
Still, many analysts on Wall Street see COIN as a solid investment, especially for investors who want to add crypto exposure to their portfolio and don’t like the extreme volatility of digital coins. Oppenheimer, which has an “outperform” rating on the stock with a price target of $444, said in a recent note that the company will play a crucial role in developing the crypto ecosystem.
Its note said:
“Longer term, whether we are at crypto winter or summer, we favor the crypto adoption trend and disruptive nature of digital assets. To us, Coinbase is an enabler of crypto innovation, and will have a strong voice in the direction of digital asset development.”
Bottom Line
Coinbase has a solid appeal for investors who want to have exposure to cryptocurrency in their portfolio. The stock closed on Wednesday at $258.20. The current weakness in COIN shares offers a good entry point for such investors in our view.