Coinbase Global (NASDAQ:PIECE OF MONEY) has had a rough time since going direct in early April, when it closed at $ 328.28. COIN stock climbed to $ 429 per share, but closed at $ 222.47 on Tuesday. This is down 48% from its peak and about 32% from its direct listing in April. But COIN’s stock is worth at least 12% more than today’s price
This also makes COIN very inexpensive, especially since the company produces stellar profits for the first quarter April 6.
I wrote about this in April, but it’s worth considering one profit metric in particular: its huge Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). He achieved $ 1.1 billion in adjusted EBITDA on $ 1.8 billion in revenue. This represents a huge EBITDA margin of 61.1%. That’s why I think COIN’s stock is worth more than its price today.
Why Coinbase’s stock fell
Before looking at COIN’s stock, I want to explain why the stock has fallen so much, especially given its huge profitability. It certainly doesn’t look like the next or two quarters will show significantly lower earnings. I think the reason for this is misplaced concern about the crypto exchange’s competition. Analysts believe its revenue, despite higher transaction volumes going forward, will decline due to lower fees.
For example, in the last quarter, the company generated revenue of $ 1.8 billion on a transaction volume of $ 335 billion. That means his average charge was 0.537% or 53.7 basis points. But consider this. Robin Hood and Webull, two popular online trading exchanges that allow limited purchase of crypto, charge no fees. Moreover, on the other hand, Binance United States, for example, a large crypto exchange competitor, only charges 2 basis points to 10 basis points. Analysts therefore assume that Coinbase will be forced to lower its transaction fees.
Well yes and no. It will likely happen over time, but it might not happen anytime soon. One of the reasons for this is that Coinbase has a huge market share and reputation in the crypto trading arena.
Coinbase estimated market share
There are no numbers or databases to track this. But we can estimate Coinbase’s market share to get an idea of ââits scale. For example, blockchain.com has a set of charts showing the average daily volume. Looking at the graphics here, it seems be around $ 6 billion per day in blockchain transactions. This works out to $ 2,184 billion per year, as a rough estimate. So, if Coinbase does $ 335 billion in transactions per quarter as in the first quarter ($ 1.46 trillion per year), it has a 69% market share (i.e. 1.46 trillion dollars per year). dollars / $ 2.184 trillion).
The point is, Coinbase probably knows that its market share in cryptos is huge. He probably doesn’t feel a lot of pressure right now to cut fees. Yes, Binance has a lower fee structure just like other online brokers, but the latter don’t offer a lot of cryptos that you can trade in.
Allowed, Bitcoin (CCC:BTC-USD) is probably the largest crypto traded and all of these brokerages allow trading there. So that could also be a factor to keep in mind.
Where that leaves COIN Stock
Analysts estimate that Coinbase will generate $ 6.41 billion in revenue this year and drop to $ 5.84 billion in 2022. By 2023, the estimate is $ 6.96 billion. However, let’s also give credit to the analysts and estimate that his EBITDA margin will drop from 61% to 50%. This means that by 2023 its EBITDA will reach $ 3.48 billion.
Therefore, assuming the stock reaches a multiple of 15 times EBITDA, its enterprise value (EV) will be $ 52.2 billion. In addition, the company also has $ 1.439 billion in net cash that is expected to be added to the electric vehicle. This gives COIN stock a target market value of $ 53.639 billion. That’s $ 12.1 billion more than its current market value of $ 47.84 billion.
Therefore, Coinbase has a target price of at least $ 249.53 per share (i.e. 12.1% above its Tuesday close price of $ 222.47). This assumes that analysts believe the company will lose market share and / or have to lower its transaction costs over the next several years. If not necessary, as I suspect could happen given its huge market share, COIN’s stock will be worth a lot more.
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As of the publication date, Mark R. Hake has a long position in Bitcoin but no other securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.