On February 24, after the regular market close, Coinbase Global, Inc. (NASDAQ: COIN), the operator of the world’s largest cryptocurrency trading platform, reported extremely strong 4Q 2021 earnings. A robust cryptocurrency market in much of 4Q 2021, together with frenetic trading by Coinbase’s customers, provided a great fundamental backdrop during the period.
Net revenue in the quarter reached US$2.49 billion, up 400% from the year-ago period and, even more impressive, up 102% sequentially. Adjusted EBITDA followed a similar pattern: the 4Q 2021 figure of US$1.2 billion represented a 319% jump versus 4Q 2020 and a 95% increase compared with 3Q 2021.
| (in millions of US dollars, except otherwise noted) | 2022E | Full Year 2021 | 4Q 2021 | 3Q 2021 |
| Monthly Transacting Users, or MTUs (millions) | 5 to 15 | 8.4 | 11.4 | 7.4 |
| Retail Trading Volume | $535,000 | $177,000 | $93,000 | |
| Institutional Trading Volume | $1,136,000 | $371,000 | $234,000 | |
| Trading Volume | $1,671,000 | $547,000 | $327,000 | |
| Retail Assets on Platform | $141,000 | $141,000 | $116,000 | |
| Institutional Assets on Platform | $137,000 | $137,000 | $139,000 | |
| Total Assets on Platform | $278,000 | $278,000 | $255,000 | |
| Total Market Capitalization of All Crypto Assets | $2,321,000 | $2,321,000 | $2,090,000 | |
| % on Coinbase Platform | 11.5% | 11.5% | 12.2% | |
| Transaction Revenue | $6,837 | $2,277 | $1,090 | |
| Subscription/Services Revenue | $518 | $213 | $145 | |
| Net Revenue | $7,355 | $2,490 | $1,235 | |
| Retail Transaction Fee Revenue/Retail MTUs | ~$45 | $64 | ||
| Transaction Expenses as % of Net Revenue | Low 20% range | 17% | 20% | 16% |
| Sales & Marketing Expenses as % of Net Revenue | 12% to 15% | 9% | 10% | 9% |
| Technology and Development Plus G&A Expenses | $4,750 | $2,201 | $757 | $599 |
| Adjusted EBITDA | $4,090 | $1,205 | $618 | |
| Net Income | $3,624 | $840 | $406 | |
| Cash, Including Digital Assets | $7,123 | $7,123 | $6,353 | |
| Debt | $3,491 | $3,491 | $3,496 | |
| Shares Outstanding (millions) | 261.9 | 261.9 | 261.9 |
The number of Coinbase’s Monthly Transacting Users grew 4.0 million, or 54%, to 11.4 million just from 3Q 2021 to 4Q 2021. Assets on the company’s platform likewise increased, albeit more moderately, to US$278 billion as of December 31, 2021 from US$255 billion on September 30, 2021.
Coinbase’s valuation, based solely on full year 2021 results looks compelling. Its enterprise value (EV) is about US$41.9 billion and its adjusted EBITDA was around US$4.1 billion, making its key EV-to-2021 EBITDA ratio just over 10x, a low figure for a growth company.
However, Coinbase management described a far less buoyant crypto trading environment in 1Q 2022 and this climate may extend into much of the full year 2022. As an illustration, Coinbase’s total trading volume in 4Q 2021 was US$547 billion; in the first eight weeks of 1Q 2022, such volume was only about US$200 billion.
In addition, the company’s expenses are expected to increase dramatically in 2022 due to much higher sales and marketing expenses (remember the Coinbase QR Code ad during the 2022 Super Bowl?) and ambitious hiring plans especially in its technology development area.
To quantity these additional costs, consider the following points:
- Sales and marketing expenses totaled US$664 million, or 9% of net revenue, in 2021. That percentage is expected to rise to 12% to 15% in 2022. At the midpoint of that range, 2022 incremental sales and marketing expenses could amount to US$300 to US$325 million.
- Coinbase’s combined Technology and Development and G&A expenses were US$2.2 billion in 2021. In 2022, the company anticipates those costs will be an astounding US$4.25 billion to US$5.25 billion, or US$2.55 billion (at the midpoint) more than in 2021.
- Taken together, these cost categories may be US$2.9 billion higher in 2022 versus 2021. When factored against Coinbase’s total adjusted 2021 EBITDA of US$4.1 billion, and with perhaps little top line growth expected in 2022, it is possible that the company’s adjusted EBITDA may drop to only around US$1 billion this year.
As a result, Coinbase’s valuation, when judged versus possible 2022 results, looks quite rich. Its EV-to-2022E EBITDA ratio could be in the 40x range versus about 10x for the same ratio using 2021 actual results. Few companies sport valuation metrics which are so different based on 2022 projections versus actual 2021 results.
Coinbase Global, Inc. last traded at US$176.83 on the NASDAQ.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
