Despite its recent surge, Coinbase's evolution makes it a compelling investment opportunity.
During the past year, Coinbase Global (COIN -2.45%) stock is up more than 240%. It has risen more than 600% since the end of 2022.
There are several reasons for this monumental resurgence, yet it might only be a sign of what's to come. With a deeper look, it becomes clear that Coinbase is well positioned to capitalize on the crypto market's burgeoning potential. Here's why Coinbase should still be on every investor's radar.
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A new Coinbase takes shape
Arguably the most compelling reason it isn't too late to buy Coinbase is because of the company's dramatic transformation. During the crypto winter of 2022, things didn't look great for Coinbase. It was relying heavily on transaction fees for revenue, and when investors fled from crypto, so did its profit. In the depths of the bear market, Coinbase posted a $1 billion loss in second-quarter 2022.
But since then, things have changed for the better. Recognizing its over-dependence on transaction fees, the company developed several new revenue streams such as subscription products, custodial services, stablecoin interest, and staking rewards. Thanks to these efforts, transaction fees now make up just over half of total revenue.
Chart by author.
Even better, as revenue has diversified, expenses have declined significantly. Due to an embrace of remote work, a reduction of staff, and automating processes, Coinbase's costs fell by 45% from the year before.
Adding to its transformation, Coinbase also embarked on a new international expansion strategy. Today it operates in more than 100 countries. It set up European headquarters in Ireland, and has launched an international exchange that allows investors to trade derivatives. It's safe to say that Coinbase barely resembles its old self.
A timely opportunity in the short term
Coinbase's revitalization is coming at the perfect time. The cryptocurrency market has been on a tear during the past several months and has nearly doubled in value since the beginning of 2023. Best of all, though, most indicators suggest that crypto has yet to hit a peak.
Consider the volume traded on Coinbase as evidence of this. At the height of the last bull market in Q2 2021, Coinbase registered $548 billion in transaction volume. As of the most recent earnings report, volume today is but a fraction of that, coming in at $154 billion.
Given the nature of crypto's cyclical growth and tendency to notch new all-time highs with each bull market, Coinbase should see activity (and revenue) on its platform continue to swell as this bull cycle progresses.
Staggering long-term potential
Although Coinbase should benefit in the short term as crypto builds momentum, the potential it has for the long haul is what becomes most alluring. The crypto market is still in its infancy and possesses many characteristics found among transformative technologies that reshaped society, such as the internet or smartphones.
Setting a target for Coinbase is difficult -- and, of course, inherently speculative. But there is considerable evidence that it has what it takes to soar to new heights. If Coinbase were to climb back to its previous all-time high of $345, that would entail a jump of 34%. Not too shabby.
But this might only be scratching the surface of its true potential. As previously mentioned, Coinbase is a completely different company compared to just a few years ago. Thanks to its revitalization, it is perfectly positioned to grow in tandem with the cryptocurrency market.
Given Coinbase's growth trajectory in several key metrics such as active users, revenue, and gross profit margin, along with its role as the go-to crypto platform for retail and institutional investors, there is a serious case to be made that Coinbase could one day be worth $1 trillion (it's market value today is about $62 billion). If it were to do so, that means the stock would rise a staggering $4,000 a share, a 1,500% increase from today's prices.
The road between Coinbase today and the Coinbase of the future will be winding and likely have some bumps along the way. However, when considering the progress it has made, the near-unlimited potential of the cryptocurrency market, and its growing reputation as the premier crypto platform, a clearer picture of Coinbase's potential comes into focus. Even with the stock up more than 600% since the end of 2022, Coinbase has plenty of room to run.
RJ Fulton has positions in Coinbase Global. The Motley Fool has positions in and recommends Coinbase Global. The Motley Fool has a disclosure policy.
