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On Tuesday, Coinbase (NASDAQ: COIN) announced its earnings for the first quarter of 2022, stating that it generated $1.17 billion in revenue for the period, while the markets were expecting it to deliver $1.48 billion. That $310 million miss represented a 50% decline in revenue from the previous quarter. During theearnings call Coinbase CEO Brian Amstrong blamed the underwhelming performance on the broader economic downturn.
"I think it's worth just addressing the elephant in the room, which is that, of course, the broader markets are down. We're seeing a down market for growth tech stocks and risk assets. And of course, Coinbase and crypto is no exception to that. So, the good news is that as a crypto company, we've lived through many different cycles in crypto, including major drawdowns which, I think, make us well-suited to operate through these environments," said Armstrong.
At time of writing, COIN was trading at $56.70 per share, which is a 33% decrease from yesterday's peak price of $85.03 at 9:45 a.m. EST, according to Yahoo! Finance. Despite the negative revenue numbers, the trading platform saw a year-over-year increase in its monthly transacting users (MTUs). Coinbase had 9.2 million MTUs in the first quarter of this year, compared to 6.1 million in 2021, marking a 50% increase. The number of active monthly users is an important measure of health for the exchange and bodes well for its future.
How Coinbase makes money
Coinbase is currently the largest cryptocurrency exchange in the United States, and it makes most of its money from fees it charges users to buy and sell digital assets on the platform. For the past few quarters, it has made focused efforts to diversify into more stable recurring revenue streams such as subscriptions and services like providing businesses access to its Coinbase Cloud computing solution which is similar to Amazon's AWS service; crypto staking; user custodial digital wallets; payment services including its new credit card; as well as its long-awaited non-fungible token (NFT) marketplace to compete with OpenSea and Rarity.
"Coinbase has an important role to play in the crypto economy as we execute on the second and third pillars of our strategy -- crypto as a new financial system and crypto as an app platform. We are investing heavily in products such as Coinbase Wallet and Coinbase NFT to help us emerge as a leader in these new markets. We are in a strong position to help drive and lead crypto's next phase, and that's where our investments will be focused," the company stated in its letter to shareholders issued yesterday.
Is Coinbase a good buy?
As background, Coinbase had its initial public stock offering on April 14, 2021, with a launch listing price of $250 a share when it began trading on the tech-heavy NASDAQ stock exchange. The price of COIN stock surged more than 70% within hours of its debut, to hit a high of $429.54 before closing its first trading day at $328.28. At that time, the company had a market capitalization of $87.3 billion. Since Coinbase provides trading options for dozens of the most popular and valuable virtual currency projects, it is widely regarded as a de facto crypto "index fund" that provides broad crypto access with a single investment vehicle.
As of today's price action, COIN is trading at an 87% discount from its all-time high. This is not financial advice, and investors should always do their own research and invest only amounts they can comfortably afford to lose. But given Coinbase's scale, ease of use, market share, structure as a default crypto index fund, and diversification plans, my personal opinion is that it's definitely worth considering at this price.
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