Shares of cryptocurrency exchange company, Coinbase (NASDAQ: COIN) have declined by 80% from record highs. At the time of writing, the COIN stock is down over 15% in early market trading on May 11, valuing the company at $17 billion by market cap.

The price of COIN stock is tied to the performance of the cryptocurrency market. In the last six months, several digital assets have declined at an accelerated pace driving shares of Coinbase lower in the process.

The company announced its Q1 results yesterday, after market hours, and reported revenue of $1.165 billion with an adjusted loss of $1.98 per share. Comparatively, analysts forecast the company to report revenue of $1.48 billion and earnings of $0.17 per share in the March quarter. 

In the year-ago period, Coinbase sales and earnings per share stood at $1.8 billion and $3.05 respectively.

Coinbase’s adjusted EBITDA also slumped to $20 million in Q1, compared to $1.11 billion in the prior-year quarter. We can see that the company’s earnings and revenue miss in Q1 left investors unimpressed, resulting in the sell-off of Coinbase stock.

 

What impacted Coinbase revenue in Q1?

Coinbase explained lower crypto prices and volatility impacted its performance in Q1. In its prospectus filed in 2021, it stated, “You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us, because we’ve always taken a longterm perspective on crypto adoption. We may earn a profit when revenues are high, and we may lose money when revenues are low, but our goal is to roughly operate the company at break even, smoothed out over time, for the time being. We are looking for long-term investors who believe in our mission and will hold through price cycles.”

The company’s MTU or monthly transaction users fell sequentially to 9.2 million while total trading volume stood at $309 billion. Coinbase ended Q1 of 2021 with 6.1 million MTUs but its trading volume was higher at $309 billion.

However, Coinbase continues to focus on improving user acquisition and engagement rates with the beta launch of an NFT marketplace, growing adoption of the Coinbase wallet and expansion of staking offerings by onboarding major cryptocurrencies such as Cardano.

Its subscription and services revenue stood at $152 million, accounting for 13% of total sales. Coinbase will aim to increase subscription sales as it will allow the company to generate stable cash flows across business cycles.

In its shareholder letter, Coinbase emphasized its growing number of users has increased engagement with its product portfolio. Around 54% of MTUs have engaged with a non-investment product such as staking in Q1. 

Further, close to six million users engaged with yield generation products in the quarter, up from 3.6 million users in Q4 of 2021. Historically, the retention levels of staking users have been much higher compared to users who just trade on the Coinbase platform.

 

What next for COIN stock and investors?

Coinbase expects a prolonged and stressful period for its business and forecasts an adjusted EBITDA loss of $500 million in 2022. It estimates annual MTUs to range between 5 million and 15 million with strong growth in its subscription and services business.

Analysts expect Coinbase revenue to fall by 20% year over year to $6.5 billion in 2022 while adjusted earnings are forecast at $1.13 per share. However, if crypto markets recover in the next year, Coinbase sales might rise to $8 billion while adjusted earnings are estimated at $3.74 per share.

So, Coinbase stock is valued at 2.1 times 2023 sales and a price to earnings multiple of 17x which is quite attractive.

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