Coinbase Global’s COIN USDC business continues to enjoy strong momentum. Recovering from its post-Silicon Valley Bank lows, the stable coin has taken market share from its largest rival, Tether. Meanwhile, strong cryptocurrency prices will support trading revenue growth for Coinbase.
The bottom line: We are increasing our fair value estimate for no-moat-rated Coinbase to $205 per share from $170. Despite the large upgrade, we still see the shares as significantly overvalued, as we think the market is extrapolating too much future growth from cryptocurrency’s recent strength.
Around $13 of the increase comes from higher revenue projections for Coinbase’s USDC revenue. USDC has seen a sudden increase in adoption, with its market capitalization setting new all-time highs. Regulatory conditions have also improved, with the Genius Act being constructive for stablecoin adoption.We have also increased our short- to medium-term trading revenue projections in response to strong cryptocurrency market conditions. The majority of Coinbase’s transaction fees are charged as a percentage of trade size, meaning higher cryptocurrency prices directly benefit the firm.
Key stats: Despite rapid growth in Coinbase’s interest income, the firm is still heavily exposed to cryptocurrency markets. More than 60% of Coinbase’s revenue in 2024 was transactional.
This leaves Coinbase heavily exposed to cryptocurrency markets, which are inherently volatile. We generally caution investors against extrapolating too much of Coinbase’s recent strength. While the firm is working to diversify its business, these alternative revenue sources lack meaningful scale.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
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