The crypto exchange giant Coinbase released its earnings for the first fiscal quarter of 2021 before its direct listing on Nasdaq on April 14th. Revenue rose to a record $ 1.8 billion – a single-handedly beating all of last year’s combined revenue.
The company attributed its parabolic growth and blowout profits to Bitcoin’s glowing rally. With the largest cryptocurrency retesting $ 60,000, its annual return on investment (ROI) is 900% – unprecedented growth for an asset class with a market capitalization of over $ 1 trillion.
“We found that high crypto prices led to increased user activity and increased trading volume on our platform. We expect significant growth in 2021 driven by transaction and custody revenues as institutional interest in the crypto asset class has increased, ”said Alesia Haas, CEO of Coinbase.
Coinbase exceeds expectations on all major earnings metrics
With crypto all the rage this year, most cryptocurrency exchanges have seen massive influx of trading volumes and users. Per BusinessWireCoinbase’s trading volume rose 276% to $ 335 billion and quarterly revenue to $ 1.8 billion. Net income for the first quarter was estimated at $ 730 million to $ 800 million.
The number of active users on the platform increased from 2.8 million in the fourth quarter of 2020 to 6.1 million in the first quarter of 2021. Verified users (who have gone through KYC procedures) saw a 30% increase to 56 million. In terms of the exchange’s balance sheet, Coinbase saw crypto assets grow 1,200% from $ 17 billion to $ 223 billion. Given that the combined market cap of the crypto market not so long ago hit $ 2 trillion, that would bring Coinbase’s holdings to a whopping 11% of the total market share.
Market valuation remains uncertain; Cops and skeptics weigh in
Despite Coinbase’s incredible first quarter results, analysts and investors disagreed on how to rate the crypto exchange. According to FTX ‘Coinbase “Pre-IPO contract“- currently at $ 527 – investor sentiment appears to have put Coinbase’s valuation at a generous $ 137 billion.
Analysts at investment bank DA Davidson raised Coinbase’s price target by 125% after the blowout quarter. Davidson reiterated his buy recommendation and gave the crypto exchange 20x its value for money, which translates into a market capitalization of approximately $ 90 billion with total shares outstanding.
On the flip side, research firm New Constructs stated that the valuation of the crypto exchange should be closer to $ 18.9 billion. Their justification for the significantly lower valuation was mainly due to declining industry-wide transaction margins. As more exchanges compete for users, it is a race for the lowest possible fees.
In a research report, the New Constructs CEO claimed that Coinbase “had little chance of meeting the future earnings expectations that feed into its ridiculously high expected valuation.”
While this may be true, many of the recent IPOs and growth stocks overall have scored exorbitantly high ratings relative to earnings. As a reference point Bitcoin holder Square ($ SQ) and Tesla ($ TSLA) trade at price-to-equity ratios of 594 and 1057, respectively.
These companies often trade at higher premiums as future earnings growth is priced in accordingly. Given the incredible upside potential of the crypto industry, Coinbase’s $ 100 billion valuation seems entirely justified.
Still, $ COIN will be available for trading on the Nasdaq exchange in four days.
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