"Should I Buy Coinbase?" We Asked A Top Crypto Expert

WPIII (Q): Okay, so what's the revenue-and-profits picture for the company? What's the growth look like? And let's take that forward… and talk "outlook."

DZ (A): The numbers are impressive. Revenue rose from $533.7 million in 2019 to $1.3 billion last year. On the earnings side, 2020 was when Coinbase turned profitable. It lost $30.4 million in 2019, but it raked in $409 million in profits last year. That's quite a turnaround.

But the real stunners came last week when Coinbase announced estimated earnings for its first quarter of this year. The execs estimated revenue at $1.8 billion, which would be an 842% increase from the same quarter last year. And estimated net income was between $730 million and $800 million, multiples higher than the net income of $31.9 million in the first quarter of last year.

The problem is, that growth probably doesn't represent what investors can expect going forward. Remember, we were in the middle of a huge crypto bull run. Coinbase does have a ton of growth ahead of it, but we're going to see a lot of that come in spurts like we just saw in Q1.

WPIII (Q): A company's share price – and its "valuation" – is really tied to its prospects. How do Coinbase's prospects look to you?

And, to flesh that out, what's the competitive landscape look like?

DZ (A): In the short to medium term, Coinbase has excellent prospects. Because it wins in the ease-of-use category, it has become the biggest crypto exchange in the United States. That's why I've called it the "AOL of Crypto." So that will drive growth for some time. But it also has worthy competitors here in the U.S., namely Kraken, which is the No. 2 exchange, and Gemini, which is run by the Winklevoss twins. Over time, I think both will pose more of a challenge, especially as more people move past the "beginner" stage.

And then there are decentralized exchanges like Uniswap. Right now, I think those are a bit too intimidating for the average investor, but that could change in the future.

WPIII (Q): The valuation is a hot topic right now – and is a focus of debate on Wall Street.

Let's start by talking about the offering itself. This wasn't a traditional initial public offering (IPO). And then let's get into the core issue: What is this company really worth?

DZ (A): Yes, Coinbase did a "direct listing" instead of an IPO. You can understand the interest, though. I mean, it's a new investment opportunity in a rapidly growing area.

WPIII (Q): And one you've been watching for a long time.

DZ (A): That's right, Bill. I've been predicting that Coinbase would be the first major crypto IPO since 2017. I'm not surprised at all by what's happening now.

Last week, I wrote a preview story – a "walkup" to the offering – that explained how analysts expected Coinbase to start trading at between $300 and $350. Nasdaq set the reference price at $250, but when it finally started trading – it was delayed until almost 1:30 p.m. – the price had jumped to $381. It got up above $400 for a while but drifted lower for the rest of the session.

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Disclaimer: Any performance results described herein are not based on actual trading of securities but are instead based on a hypothetical trading account which entered and exited the suggested ...

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