Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
What I thought about Coinbase Global’s revenues
Coinbase Global coin As cryptocurrency prices declined during the quarter, revenues were reported to be weaker in the first quarter, resulting in less losses in trading and cryptocurrency assets. Net revenue fell 11% from the previous quarter, but rose 24% from last year to $1.96 billion.
Why it matters: Coinbase’s first quarter revenue was strong, but it adjusted for cryptocurrency investment losses of $65.6 million, or $526.6 million, compared to last year’s $1.1 billion.
•We generally dislike Coinbase’s choice to hold cryptocurrency investments in materials. This is because they are already heavily exposed to cryptocurrency valuations through custody, staking and trading.
• The decline in cryptocurrency prices in the first quarter was a headwind towards the company’s trading volume. This was the main perpetrator behind the sequential decline in revenue. Total trading volume fell 10.5%, and total trading revenue fell 18.9% to $1.26 billion.
Bottom line: We maintain a $170 fair value estimate for Coinbase without motes. After a strong recovery from its low in April, we believe the stock is being modestly overvalued.
• Cryptocurrency prices are inherently unstable, bringing considerable volatility to Coinbase’s quarterly results. That being said, the company has had considerable success in steadily increasing revenue, increasing more than 50% from last year, easing some of the cryptocurrency’s price exposure.
Appearance: Early on Coinbase, it announced it intends to buy Deribit, a cryptocurrency derivative exchange, for $700 million in cash and 11 million shares, or at a total price of around $2.9 billion.
•The agreement strengthens Coinbase’s international expansion efforts and exposure to cryptocurrency derivative markets. With nearly $10 billion in cash and stable assets, the acquisition is within the scope of Coinbase’s instruments.
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