In this post I’ll try to explain to you degens why Coinbase is actually a high growth tech company, and not some exchange that will become irrelevant in 3-5 years.
Let’s ignore revenue from trading fees (89%) of Coinbase’ revenue in Q3.
AND let’s ignore the upcoming “expensive jpeg” (I know that’s not the only use case, fuck off) marketplace.
Let’s just focus on subscription & services revenue, which made up the other 11% of revenue from Q3.
Here’s what you need to know. the average quarter over quarter growth rate for their subscription and services revenue over the last 4 quarters is 97.34%.
Yes (in millions $, Q3’2020 – Q3’2021): 10.7 > 20.7 > 56.4 > 102.6 > 145.2.
Now, you might say, millions is nothing for a company with a $40B market cap. Why are we talking about this?
Here’s why: Q3 posed 41.5% growth in S&S revenue quarter over quarter, and this was during a “winter” where trading volumes were down 30% quarter over quarter. I propose that this means regardless of asset prices, institutions (primarily) are continuing to invest into this new asset class.
And that this category of revenue is going to CONTINUE to grow exponentially for the foreseeable future. Coinbase is the best positioned to serve the needs of existing institutional entities as well as startups that want to get involved in this space. And I see no competition coming.
Also, even if there was competition, guess what – Coinbase would probably be an investor, and probably acquire them. Their Venture arm has invested more than $26B in various “decentralized web technology companies in 2021)
Analysts are expecting Coinbase revenue & earnings to decline substantially in 2022. I think for one thing, that Q4’2021 may surprise to the upside on higher than expected growth in the S&S category of revenue (since trading volumes are public data, there’s not much room for surprise).
Furthermore, I think that 2022 is going to be another explosive year of adoption in all aspects of this space.
We’ll talk about valuations next. Now, we can’t ignore revenue from trading fee’s here. So keep that in mind. But I like to think of revenue from trading fees much like the tax credits Tesla received that made them profitable originally. They may be temporary, but they are giving the company a really strong financial foundation to stand on. But let’s try to price this company based on the underlying growth, with the understanding that the balance sheet is exceptionally healthy.
Given their Q3 S&S revenue of $145M, up by ~1300% from Q3 of 2020… We’ll to be honest, I started writing this section with the intent of proving they deserved a certain multiple, but I’m kinda retarded, so I’ll leave that to somebody else. But I ASSERT that a P/E of ~16 (as it stands today) is too damn low. And – oh – by the way – after they report Q4 earnings it should be closer to 13.
Yes – If they have a record breaking quarter (they will), but, let’s for simplicity assume they match Q2 (less the tax credit they cashed in Q2 which pumped their earnings ~$737M, and I might be missing something here but I’m doing the conservative thing) that would leave them with Q4 net income of $869M. Which would put their yearly EPS at $13.9. Which only edges out consensus to the upside by ~5%.
So if consensus is so on-the-nose, again, what are we talking about?
Well consensus is only coincidentally on the nose, because S&S revenue is only ramping up. An extra $100M here or there doesn’t mean a lot to Coinbase’ earnings today. But by the end of 2022, they could be doing closer to $1B (roughly 4x on the +$200M I expect to see in Q4 earnings) in S&S revenue each quarter. Do I know where the growth stops? no I do not. Which is why I’m bullish as fuck.
And again, analyst consensus is that Coinbase revenue declines in 2022 and beyond. I think there will be a tidal wave of price target raises somewhere between Q2 & Q3 of this year.
All of this to say that in the face of overwhelming evidence, analysts will have to raise price targets and somewhere along the way, wall street will realize Coinbase is a high growth tech company that deserves a growth multiple. Revenue diversification isn’t coming, it’s here, and it’s sneaking up on everybody who doesn’t understand why Coinbase should be worth more than Nasdaq.
No TLDR for you. $505 C 1/20/2023.
Submitted February 04, 2022 at 04:45AM by CoinbaseCorner
via reddit https://ift.tt/XycKnal