After Earnings, Is Coinbase Stock a Buy, a Sell, or Fairly Valued?

Coinbase Global COIN released its first-quarter earnings report on May 8. Here’s Morningstar’s take on Coinbase’s earnings and stock.

Key Morningstar Metrics for Coinbase GlobalWhat We Thought of Coinbase Global’s Earnings

Coinbase reported sequentially weaker first-quarter earnings as falling cryptocurrency prices during the quarter led to less trading and cryptocurrency asset losses. Net revenue decreased 11% from last quarter, though rose 24% from last year, to $1.96 billion.

Why it matters: While Coinbase’s first-quarter revenue was solid, its net income fell to $65.6 million, or $526.6 million adjusted for cryptocurrency investment losses, from $1.18 billion last year.

We generally dislike Coinbase’s choice to hold material cryptocurrency investments as the firm is already heavily exposed to cryptocurrency valuations through its custody, staking, and trading businesses.Falling cryptocurrency prices in the first quarter were a headwind to the firm’s trading volume, which was the primary culprit behind the sequential decrease in revenue. Total trading volume decreased 10.5%, driving total transaction revenue down 18.9% to $1.26 billion.

The bottom line: We will maintain our $170 fair value estimate for no-moat-rated Coinbase. We see the shares as modestly overvalued following their strong recovery from April lows.

Cryptocurrency prices are inherently volatile, which contributes considerable volatility to Coinbase’s quarterly results. That said, the firm has had considerable success in growing its stablecoin revenue, which rose more than 50% from last year, mitigating some of this cryptocurrency price exposure.

Coming up: Earlier in the day Coinbase announced that it intends to buy Deribit, a cryptocurrency derivative exchange, for $700 million in cash and 11 million shares, or roughly $2.9 billion in combined value.

The deal will bolster Coinbase’s international expansion efforts and its exposure to cryptocurrency derivative markets, in which the firm has only recently established a presence. With nearly $10 billion in cash and stablecoin assets, the acquisition is well within Coinbase’s means.

Fair Value Estimate for Coinbase Global

With its 2-star rating, we believe Coinbase stock is overvalued compared with our long-term fair value estimate of $170 per share, an increase from $150, which translates to 19 times our 2025 earnings projection. Around $2 of the increase comes from earnings since our last update. Another $10 comes from higher stable coin revenue projections. USD Coin’s market capitalization increased rapidly in the final months of 2024 and, so far, in 2025. Coinbase’s stable coin revenue comes from interest on the collateral behind USDC, meaning that rising market capitalization feeds directly into the firm’s top line. The rest of the increase comes from higher trading revenue expectations as we adjust our model to reflect the recent rally in cryptocurrency prices.

Our fair value estimate depends heavily on trading volume assumptions, the rate at which we expect Coinbase’s trading fees to compress over time, and interest income projections from Coinbase’s partnership with Circle for the stable coin USDC.

Economic Moat Rating

In our view, Coinbase does not have an economic moat despite being the leading cryptocurrency exchange in the United States. Coinbase has been able to carve out a strong place in the cryptocurrency exchange industry by intentionally positioning itself as a reliable and regulation-compliant place to buy and sell cryptocurrency in an industry filled with risk, weak security practices, and spotty regulatory enforcement. This has allowed the company to successfully charge fees higher than many of its peers while building a large pool of liquidity on its platform. The company’s reputational advantages have only grown in recent years, following the collapse of one of its largest rivals, FTX, due to financial fraud. While we do expect fee compression to occur in the long term, recent events will likely allow Coinbase to continue to charge a premium in the immediate future.

However, Coinbase relies on the growth and success of bitcoin, Ethereum, and other cryptocurrencies to generate returns on its invested capital. Cryptocurrency is still highly speculative, and its long-term success and viability is by no means guaranteed. Coinbase has built a strong competitive position, but there is too much potential for its returns on invested capital to rapidly evaporate for us to award the company a moat.

Financial Strength

Coinbase is in a strong financial position, though it needs to be, as the firm’s heavy exposure to cryptocurrency prices and volatility can lead to sharp swings in revenue and profitability. The company ended December 2024 with more than $8.5 billion in cash and almost $2.8 billion in cryptocurrency investments, which include more than $1.2 billion in USDC, a cryptocurrency pegged to the US dollar. These assets are held against $4.2 billion in debt.

The decision to keep strong cash reserves makes sense, given how volatile the company’s revenue generation can be, and it gives Coinbase room to maneuver during prolonged weak cryptocurrency markets. We think staying relatively unleveraged will be an important step in keeping the company financially secure in the long term through market cycles.

Risk and Uncertainty

We give Coinbase a Morningstar Uncertainty Rating of Very High. Coinbase gets more than half of its net revenue from trading fees at its exchange business. Fees are charged as a percentage of the underlying assets being traded, creating direct exposure to cryptocurrency prices. The cryptocurrency market is highly volatile and deeply cyclical. In 2022, Coinbase’s revenue fell more than 59% from the prior year as cryptocurrency prices collapsed. The number of active traders on Coinbase’s platform can vary sharply based on market performance. Currently, this exposure is acting to Coinbase’s advantage, but the durability of the current market recovery is a major point of uncertainty. The company is also exposed to falling interest through its participation in USDC, which generates significant interest income for the firm.

There is also a material amount of environmental, social, and governance risk in Coinbase’s business. Coinbase operates with a broad scope. It acts as an asset custodian, broker, and exchange in the cryptocurrency economy. This creates significant potential for conflicts of interest, which could lead to reputational damage or regulatory action. There are also legal and regulatory gray areas in Coinbase’s business.

COIN Bulls SayCoinbase has established itself as the leading US cryptocurrency exchange and built a strong reputation for security in an industry filled with risk.Cryptocurrency prices increased sharply at the end of 2024, leading to much higher trading volume and revenue.There is a global market for cryptocurrency. Regulatory approval from international regulators will allow Coinbase to expand its operations and increase its footprint globally.COIN Bears Say Cryptocurrency markets have historically been deeply cyclical, with long periods of low prices and depressed trading volume. This adds considerable volatility to Coinbase’s revenue flow.The regulatory landscape and long-term viability for cryptocurrency remains unclear, with regulators becoming more aggressive in the aftermath of the high-profile fraud and the failure of FTX.Coinbase’s stable coin revenue is dependent on interest rates, adding another layer of cyclicality to the firm’s results.

This article was compiled by Gautami Thombare.

After Earnings, Is Coinbase Stock a Buy, a Sell, or Fairly Valued?

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