Coinbase Global has released its fourth-quarter earnings report, revealing a mixed outlook for the cryptocurrency exchange amidst ongoing challenges in the market. While the results were better than anticipated, the company continues to grapple with the repercussions of significant declines in cryptocurrency prices, which adversely affect its trading, staking, and custody business lines.
Morningstar has responded to the earnings report by revising its fair value estimate for Coinbase stock from USD 188 to USD 160. This adjustment is largely driven by a notable reduction in projections for near-term trading revenue, due to a dramatic drop in total cryptocurrency market capitalization—over 45% since its peak in October. It is anticipated that Coinbase will experience a 20.6% decrease in trading revenue by 2026, with a full recovery not expected until 2028. This downturn is somewhat offset by a projected 14% growth in subscription and service revenue, primarily linked to the firm’s stable coin operations.
In a broader context, Coinbase has shown determination in mitigating its exposure to cryptocurrency price fluctuations by expanding its recurring revenue streams and diversifying its business. Despite another expected dip in earnings, the firm is projected to remain profitable, contrasting sharply with the significant losses suffered during the previous crypto winter in 2022.
Currently rated as a 3-star stock, Morningstar views Coinbase as fairly valued, indicating that its shares are trading at approximately 71.8 times the projected earnings for 2026. This valuation is heavily influenced by fluctuations in trading volumes, anticipated fee compressions, and interest income projections from Coinbase’s collaboration with Circle for the USDC stable coin.
While it leads the U.S. cryptocurrency exchange market, Morningstar believes Coinbase lacks an economic moat, despite its reputation as a reliable and regulation-compliant platform. The firm successfully differentiates itself from competitors by capitalizing on the volatility and risk associated with less established exchanges, charging premium fees while ensuring a robust liquidity pool. The aftermath of FTX’s collapse has further bolstered Coinbase’s standing among users seeking security and reliability.
From a financial strength perspective, Coinbase remains well-positioned with a solid balance sheet, concluding December with over USD 11.2 billion in cash and almost USD 2 billion in cryptocurrency investments, against USD 7.2 billion in debt. This significant cash reserve is crucial given the high volatility of its revenue, enabling the company to weather prolonged downturns in the cryptocurrency market without becoming overly leveraged.
However, the company faces a high level of uncertainty. With over half of its net revenue derived from trading fees, Coinbase is acutely affected by market fluctuations. The cyclical nature of cryptocurrency means that revenues can swing dramatically, like the 59% fall recorded in 2022 amid collapsing prices. Although strides have been made to bolster recurring revenue sources, reliance on the speculative cryptocurrency market remains a critical risk.
Looking ahead, proponents of Coinbase anticipate a more favorable regulatory landscape under the current administration, potential growth in stablecoin adoption, and opportunities for expansion into international markets. Conversely, skeptics highlight the cyclical nature of the cryptocurrency markets, the potential for increased competition due to regulatory changes, and the vulnerability of stablecoin revenues to shifts in interest rates.
In summary, while Coinbase has made substantial efforts to diversify its business and fortify its financial standing, it continues to face significant challenges stemming from the volatility of the cryptocurrency market and shifting regulatory landscapes.
