Global Expansion And USDC Adoption Will Open New Markets

Key Takeaways

• International expansion and a focus on stablecoin partnerships are key to revenue growth and improved profit margins.
  
• Regulatory clarity and expanding crypto utility are expected to boost institutional participation and recurring revenue streams.
  
• Reputational risks from token quality and market, regulatory challenges could impact Coinbase's revenue and margin stability amidst international and market condition dependencies.

Catalysts

Operates platform for crypto assets in the United States and internationally.

• Coinbase's international expansion strategy, including its repeatable playbook for entering new high-growth markets, is expected to drive significant revenue growth by increasing its global market share and improving profit margins through economies of scale.
  
• The push to make USDC the number one dollar stablecoin is poised to impact revenue and market share positively, bolstered by strategic partnerships and an increase in stablecoin payments that could enlarge the addressable market and lead significant earnings growth.
  
• Regulatory advancements in the United States, such as clarity in market structure and stablecoin legislation, are expected to enhance investor confidence, broaden Coinbase's total addressable market, and enable greater participation from institutional investors, potentially impacting revenue positively.
  
• The emphasis on deploying institutional-grade derivatives trading and increasing U.S. spot and global derivatives market share suggests a strong potential to boost revenue from trading activities, given the substantial trading volume coming back onshore due to regulatory improvements.
  
• The commitment to expanding the utility of crypto beyond trading into categories like payments and consumer applications is forecasted to drive recurring subscription and services revenue growth, likely resulting in higher earnings due to the increased stickiness and utility of these offerings.

Coinbase Global Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Coinbase Global compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Coinbase Global's revenue will grow by 20.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 41.0% today to 23.4% in 3 years time.
• The bullish analysts expect earnings to reach $2.5 billion (and earnings per share of $10.89) by about April 2028, down from $2.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 49.6x on those 2028 earnings, up from 17.3x today. This future PE is greater than the current PE for the US Capital Markets industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 3.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

Coinbase Global Future Earnings Per Share Growth

Risks

• The rapid increase in the number of tokens, including many lower-quality or memecoins, could lead to reputational risk and make it challenging to differentiate quality offerings, potentially affecting future revenue from trading activities.
  
• Despite growth in stablecoin adoption, the potential for lower interest rate environments reducing revenues from on-platform USDC balances could impact net margins unfavorably.
  
• The international expansion plans face execution risks, particularly in maintaining contribution margin positive operations amidst potential regulatory changes in different jurisdictions, which could affect earnings stability.
  
• Heavy reliance on market conditions and regulatory environments in the U.S. could pose risks if there are adverse changes, potentially impacting overall revenue and net income if new legislation does not move in expected favorable ways.
  
• Offering incentives to build liquidity in newer markets like derivatives might pressure profit margins in the short term, leading to lower net margins until a mature share is achieved and take rates can be adjusted.

Valuation

• The assumed bullish price target for Coinbase Global is $365.69, which represents one standard deviation above the consensus price target of $287.19. This valuation is based on what can be assumed as the expectations of Coinbase Global's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $400.0, and the most bearish reporting a price target of just $169.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $10.9 billion, earnings will come to $2.5 billion, and it would be trading on a PE ratio of 49.6x, assuming you use a discount rate of 7.3%.
• Given the current share price of $175.57, the bullish analyst price target of $365.69 is 52.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.