For more detailed analysis visit our website: https://www.overlookedalpha.com
Today it emerged that Sam Bankman-Fried’s crypto exchange FTX was facing a liquidity crisis.
The price of the FTX token dropped 85% and rival binance stepped in to bail out the exchange, pending due diligence.
This had spillover effects throughout the crypto markets with bitcoin down 5%, ethereum down 9% and Coinbase down 10.8%, at the time of recording.
Based on today's share price, Coinbase now has a market cap of 11.5 billion dollars. With 5 billion in cash and 3.4 billion in debt, the enterprise value is roughly 9.9 billion.
Even before today’s developments Coinbase, the business, was not doing well.
At its peak in the fourth quarter of 2021, Coinbase generated 2.5 billion in revenue and 840 million in net income. In its most recent quarter, revenues had dropped to just 576 million and a net loss of 545 million.
In other words the company is not making a profit and is valued at around 2 times trailing twelve month revenue.
Meanwhile trading volume on the platform has dropped -70% since 2021, assets on the platform have dropped by 64% but operating expenses have climbed by 12%.
Crucially, peak revenues from 2021 show no sign of coming back. The FTX debacle is the latest crisis to hit the crypto markets following the collapse of Luna, Celsius, Voyager and others.
These events destroy confidence and cause investors to pull their money out of crypto. Trading losses also reduce the total amount of assets on the platform which Coinbase relies on to generate income.
But even if bitcoin stages a dramatic comeback from here, Coinbase is still not a particularly good business. It makes most of its money from trading commissions but huge competition in the industry means that trading commissions will inevitably trend to zero over time squeezing the company’s margins.
Other ventures such as NFTs sound interesting but they contribute little to top line revenue and are not enough to base an investment case on.
On the positive side, Coinbase doesn’t engage in leveraged trading which makes it a less risky bet than other crypto exchanges. It also earned 102 million in interest income last quarter thanks to higher interest rates.
Even so, it will be a while before Coinbase returns to profitability and there appears very little reason to buy the stock. But these are my personal opinions, not financial advice. For more detailed analysis, visit our website.
Today it emerged that Sam Bankman-Fried’s crypto exchange FTX was facing a liquidity crisis.
The price of the FTX token dropped 85% and rival binance stepped in to bail out the exchange, pending due diligence.
This had spillover effects throughout the crypto markets with bitcoin down 5%, ethereum down 9% and Coinbase down 10.8%, at the time of recording.
Based on today's share price, Coinbase now has a market cap of 11.5 billion dollars. With 5 billion in cash and 3.4 billion in debt, the enterprise value is roughly 9.9 billion.
Even before today’s developments Coinbase, the business, was not doing well.
At its peak in the fourth quarter of 2021, Coinbase generated 2.5 billion in revenue and 840 million in net income. In its most recent quarter, revenues had dropped to just 576 million and a net loss of 545 million.
In other words the company is not making a profit and is valued at around 2 times trailing twelve month revenue.
Meanwhile trading volume on the platform has dropped -70% since 2021, assets on the platform have dropped by 64% but operating expenses have climbed by 12%.
Crucially, peak revenues from 2021 show no sign of coming back. The FTX debacle is the latest crisis to hit the crypto markets following the collapse of Luna, Celsius, Voyager and others.
These events destroy confidence and cause investors to pull their money out of crypto. Trading losses also reduce the total amount of assets on the platform which Coinbase relies on to generate income.
But even if bitcoin stages a dramatic comeback from here, Coinbase is still not a particularly good business. It makes most of its money from trading commissions but huge competition in the industry means that trading commissions will inevitably trend to zero over time squeezing the company’s margins.
Other ventures such as NFTs sound interesting but they contribute little to top line revenue and are not enough to base an investment case on.
On the positive side, Coinbase doesn’t engage in leveraged trading which makes it a less risky bet than other crypto exchanges. It also earned 102 million in interest income last quarter thanks to higher interest rates.
Even so, it will be a while before Coinbase returns to profitability and there appears very little reason to buy the stock. But these are my personal opinions, not financial advice. For more detailed analysis, visit our website.
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NewsTranscript
00:00 Should you buy Coinbase stock? Today it emerged that Sam Bankman Freed's crypto exchange FTX
00:05 was facing a liquidity crisis. The price of the FTX token dropped 85% and rival Binance
00:11 stepped in to bail out the exchange pending due diligence. This had spillover effects throughout
00:16 the crypto markets with Bitcoin down 5%, Ethereum down 9% and Coinbase down 10.8% at the time of
00:23 recording. Based on today's share price Coinbase now has a market cap of $11.5 billion with $5
00:29 billion in cash and $3.4 billion in debt. The enterprise value is roughly $9.9 billion.
00:34 But even before today's developments Coinbase the business was not doing well. At its peak
00:38 in the fourth quarter of 2021 Coinbase generated $2.5 billion in revenue and $840 million in net
00:45 income. In its most recent quarter revenues had dropped to just $576 million and they posted a
00:50 net loss of $545 million. In other words the company is not making a profit and is valued
00:55 at around 2 times trading 12 month revenue. Meanwhile trading volume on the platform has
00:59 dropped 70% since 2021. Assets on the platform have dropped by 64% but operating expenses have
01:06 climbed by 12%. Crucially peak revenues from 2021 show no signs of coming back. The FTX debacle is
01:13 the latest crisis to hit the crypto markets following the collapse of Luna, Celsius,
01:17 Voyager and others. These events destroy confidence and cause investors to pull their
01:21 money out of crypto. Trading losses also reduce the total amount of assets on the platform which
01:26 Coinbase relies on to generate income. But even if Bitcoin stages a dramatic comeback Coinbase is
01:32 still not a particularly good business. It makes most of its money from trading commissions but
01:36 huge competition in the space means that trading commissions will inevitably trend to zero over
01:41 time squeezing the company's margins. Other ventures such as NFTs sound interesting but
01:47 they contribute little to top line revenue and are not enough to base an investment case on.
01:51 On the positive side Coinbase doesn't engage in leveraged trading which makes it a less risky
01:56 bet than other crypto exchanges. It also earned $102 million in interest income last quarter
02:01 thanks to higher interest rates. Even so it's going to be a while before Coinbase returns to
02:06 profitability and there appears to be very little reason to buy the stock. But these are my personal
02:10 opinions not financial advice for more detailed analysis visit our website.