Summary Although COIN is ranked as the best player in its industry, I believe the stock is likely to fall further. Somehow COIN's FY2027 EPS growth is expected to be 350% on a 48.44% [both YoY] revenue decline. At the moment, COIN's YTD growth appears to have plateaued and absorbed the recent BTC rally. Coinbase's assets under management are shrinking and the trend is expected to persist. I rate COIN stock as a Sell with a target price of $53 per share in the medium term. Intro & Thesis From the beginning of the year through March 21, Coinbase Global ( COIN ) stock rose more than 137% before immediately falling 8.16% on March 22, and then dropping another >15% [post-market] following comments from SEC staff about a possible enforcement action over alleged securities law violations related to newly issued and actively traded securities. Seeking Alpha, the author's compilation Although COIN is ranked as the best player in the Financial Exchanges and Data industry [Seeking Alpha data], I believe the stock is likely to fall further, as increasing regulatory risks should theoretically confirm the pessimism of Wall Street analysts who believe the company will achieve rapid revenue growth rates but will not break even on earnings per share until FY2026. Why Do I Think So? First, I would like to share a few thoughts on why COIN is ranked first on the SA's Quant Rating System . Most likely, this system pays special attention to such a factor as Momentum; also, presumably, a lot of weight is on the side of Revisions. So the more positive earnings revisions a company has and the stronger its current [short-term] stock growth, the higher it ranks overall. It is the combination of these two factors that have placed COIN so high among the other 21 peer companies: Seeking Alpha, COIN stock, Quant Rating System [author's notes] Now let us understand what each of these two metrics is associated with. COIN's Momentum factor , in my opinion, depends on the overall state of the crypto market, the indicator of which is the price of Bitcoin ( BTC-USD ) as the most highly capitalized financial instrument. This is confirmed both by the visual comparison of COIN with BTC and by the statistically significant correlation between the two instruments: YCharts, author's compilation, and notes In turn, COIN's Revisions , in my opinion, depend on 1) the dynamics of the forecasts and 2) the comparative position of these forecasts in the structure of the whole sector. The industry to which COIN belongs is part of the Financials sector - we all know what is happening there right now. All Wall Street analysts started to lower their forecasts for this sector en masse, expecting further tightening of lending conditions and consequently a reduction of banks' net interest margins. COIN, of course, looked relatively better in this comparison, which made it the first in its industry, in my opinion. When we look at the current revenue and EPS forecasts, we see a more deplorable state of affairs. The Street believes the company will continue to be unprofitable through FY2026: Seeking Alpha, COIN's Earnings Estimates The company's revenue projections seem a bit odd to me - somehow COIN is expected to break even in FY2026 against a backdrop of 6.76% [YoY] revenue growth. And in FY2027 EPS growth is expected to be 350% on a 48.44% [both YoY] revenue decline. Seeking Alpha, COIN's Earnings Estimates [author's notes] How can a company increase its net profit by 350% while losing half of its revenue for the year? Something doesn't add up here as far as I see it. Without looking too far into the future, let's just think about the next 1-2 years for Coinbase. Latin America expansion plans will clearly have a positive impact on base expansion - hence the strong expected revenue growth for FY2024. But how much R&D and CAPEX will need to be spent on this? They are already eating up all the revenue growth: Data by YCharts Add to these costs the potential risks of fines and regulatory penalties that may, if not directly, indirectly affect business operations. Given all this, how can COIN improve its negative EPS by almost half? Jerome Powell and Janet Yellen's recent policy address highlighted that depositors must take responsibility for their funds as the FDIC will not raise the $250,000 cap. It may potentially lead to increased caution amongst depositors and benefit major banks, while the high volatility of crypto exchanges and their instruments poses risks of runs or gradual slowdowns in client activity. Coinbase already has acute problems with shrinking assets under management - despite continued user growth, COIN's AUM has fallen by more than 64% in the last year [YoY]. Business of Apps, Coinbase COIN's growth appears to have plateaued and absorbed the recent BTC rally . Even the insiders have stopped adding new positions - if in January/February only the CEO sold [who always got rid of all his options and automatically stopped being a shareholder], then some other executives joined in late February/March: Openinsider.com, COIN stock [author's notes] Of course, management selling shares tells us little - but one has to admit that it's always nice when the CEO owns at least a small stake in the company he runs. Bottom Line Maybe I am wrong in my rather pessimistic assessments about Coinbase - maybe I am just missing something. Perhaps this "something" is the catalyst and cause for the revenue and EPS forecast inconsistencies I noted in my analysis to disappear. The continued growth of COIN stock after such a sharp and prolonged decline is quite likely to continue - in any case, the stock is not yet that crowded [according to Citi Research on March 21, 2023 - proprietary source]: Citi Research data, the author's notes Despite the presence of the upside risks to my thesis, I still tend to think that COIN stock has a slippery road ahead as its EPS and revenue estimates return to downward momentum. Dependence on the volatile dynamics of BTC and some crypto assets, as well as a decrease in user activity against the backdrop of AUM's continued decline, will continue to hang over the company like the sword of Damocles . I am not an expert in technical analysis, but on the short to medium-term chart [4 hours] I see the momentum slowing down - after the stock market opens on March 23, this will be confirmed. COIN could drop even lower in the next 2 weeks - right to its long-term moving average: TrendSpider Software, COIN stock [4-hour], the author's notes The forwarding EV-to-Sales multiple of nearly 6x is not saving the day. Valuation multiples look "OK" for a high-growth company, but the problem is that Coinbase is not having that much growth with its declining operating metrics all over the place. I rate COIN stock as a Sell with a target price of $53 per share in the medium term. As always, your comments are welcome! Thanks for reading!
