Goldman Sachs Initiates Coverage on Coinbase with Buy Rating
31 Maio 2021 - 6:30AM
Finscreener.org
Recently, Coinbase (NASDAQ: COIN)
became the
first cryptocurrency exchange to trade on the NASDAQ. Coinbase
stock touched a record high of $429.54 on its first day of listing
and has since fallen 44% to trade at its current price of $241. So,
is it a good time to buy the dip or should you wait for a further
correction in its stock price?
Earlier this week, investment bank Goldman Sachs (NYSE: GS)
initiated coverage on Coinbase with a “buy” rating. Goldman Sachs
has a 12-month average target price of $306 on Coinbase stock which
is almost 30% higher than its current trading price. The investment
bank believes Coinbase is the best way to gain exposure to the
highly disruptive but rapidly expanding cryptocurrency
ecosystem.
According to a report from
Fortune.com, Goldman Sachs explained, “If meaningful parts of
the economy can transition to blockchain and crypto-native
technology over time," the analysts wrote, "we see significant
opportunity for [Coinbase] to benefit from its status as a critical
element of the financial infrastructure for the ecosystem."
Coinbase thrives on volatility
Similar to most other cryptocurrency exchanges, even Coinbase
generates a majority of its sales from trading fees and
commissions. The widespread adoption of Bitcoin and other digital
assets should increase the number of crypto investors going forward
which in turn will drive organic growth for Coinbase. However, the
underlying volatility that is associated with the cryptocurrency
space is also a key driver of top-line growth for Coinbase.
Given that Coinbase derives 96% of sales from trading activities
it has enough room to diversify its revenue base. The company can
expand its suite of products and solutions and rollout ancillary
services such as collateralized lending.
Goldman Sachs stated, “While we believe the core business today
offers an attractive growth profile with the potential to drive
high levels of profitability, we see significant white space for
new initiatives to drive more stable and recurring revenue
streams."
What next for investors?
Coinbase is an industry leader with over 56 million verified
users and $335 billion in average trading quarterly volume. In Q1,
Coinbase reported net revenue of $1.59 billion and total revenue of
$1.8 billion. The company’s net revenue rose 8x times year over
year. Comparatively, its net income soared 23x to $771 million and
EBITDA rose 19x to $1.11 billion in Q1 of 2021.
Coinbase continues to benefit from the surge in institutional
investment in the crypto space. In Q1, $215 billion of total
trading volume for Coinbase was associated with institutional
investors.
In the March quarter, Coinbase focused on improving the
reliability and scalability of products to meet the growing volume
on its platform. It added seven new assets to trade and 13 new
assets were available to custody in Q1. Earlier this year, the
company launched Coinbase Asset Hub which is a platform to help
asset issuers integrate tokens with the exchange to facilitate
accelerated listing.
Coinbase stock is currently valued at a market cap of $63
billion which means itU+02019s trading at a forward price to sales
multiple of 10x given analysts forecast sales to touch $6.26
billion in 2021. Its price to earnings multiple stands at 32x which
is extremely attractive if you are bullish on the cryptocurrency
segment.
The final takeaway
Coinbase is a company that has grown at an exponential rate in
the last year. However, its massive growth can be attributed to the
outsized gains of Bitcoin and Ethereum. In case markets turn
bearish, revenue and profit margins for Coinbase will also decline
at an alarming rate.
The stock price of Coinbase will be tied to the success of the
cryptocurrency ecosystem and related prices.
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