Coinbase Price Target Analysis

Hello everyone! I prepared a valuation analysis for this stock and wanted to share my results: First of all, I went onto nomics.com and downloaded the historical trading volumes for coinbase. I took the daily trading volumes for each day of the first quarter and summed them up. The total dollar amount of trading activity on Coinbase for Q1 2022 was: $307,744,400,239. I then looked at Coinbase most recent quarterly report, the Q4 2021 report. Listed in this report is the financials and trading volumes for the 5 preceding quarters. The trading volumes went as such: Q4 2020 - 89B, Q1 2021 - 335B, Q2 2021 - 462B, Q3 2021 - $327B, Q4 2021 - 547B. I then looked at the net trading revenues from these quarters, and they go as follows: 497M, 1.597B, 2.033B, 1.235B, and 2.49B. I divided the revenues by the associated trading volumes for each quarter to get what percentage of trading volume was collected as fee revenue. This rate was fairly similar in all quarters and averaged to be 0.461615%. This means that 0.461615% of trading volume has historically been collected as fee revenue for Coinbase. Applying this historic percentage to Q1 2022s trading volume of 307,744,400,239 , we find that the net trading revenues would be $1,420,592,930.09. Well this is just the projected revenue for this quarter, but how about the earnings? Well the quarterly report also shows the profitability of Coinbase for the 5 preceding quarters and they go as such: Q4 2020 - Revenue of 497M, and Net Income of 177M. Q1 2021 - Revenue: 1.597B, NI: 771M. Q2 2021 - Revenue: 2.033B, NI: 1.606B. Q3 2021 - Revenue: 1.235B, NI: 406M. Q4 2021 - Revenue: 2.490B, NI: 840M. I then divided the net income by the revenues to find the profit margin and they are all pretty similar across all the listed quarters. The profitability is around 32-40% each quarter, besides Q2 2021 where profitability was a whopping 78.99656%. That quarter was definitely an outlier, to the positive side. However, I wanted my valuation to be VERY conservative, so I decided to completely cut out this positive outlier, as it pulled the average profit margin much higher. Including this outlier, the average profit margin was 45.8995388%, without the outlier it was an average of 37.70407%. We will use that conservative average, and make that our "base case" profit margin. In order to account for possible increases or decreases in profitability, I constructed a three case analysis. I took the average historic profit margin (37.70407%) as the base case, a significantly lower profit margin of 30% (which is lower than ANY previous quarter) as my conservative case, and a 40% (higher end of historical margins) as my generous or "best case". The three cases came to the following potential net incomes for Q1 2022: Conservative case: $426,177,879.03; Base case: $535,621,393.47; Generous/Best case: $568,237,172.04. I then took these three potential cases of quarterly profit and calculated the forward P/E ratios at the three different earnings levels. The conservative margins equate to an annual net income (earnings) of 1,704,711,516.11 for 2022; the base case annual net income is 2,142,485,573.89 for 2022; the generous/best case annual net income is 2,272,948,688.14 for 2022. This means that at the current price level of Coinbase, the forward P/Es would be: 14.67110403 for the conservative case, 11.67335748 for the base case, and 11.00332803 for the best case. We then have to decide what multiple the market will accept as a fair multiple for Coinbase. Coinbase is a fintech company in the cryptocurrency space, and therefore commands a higher multiple. Many fintech stocks trade at a 200+ multiple, other more established brands such as Visa and Mastercard trade around 35-45. Others, such as Paypal, are currently trading around 25. Due to the many macroeconomic and geopolitical factors weighing on market valuations at the moment, I decided to be VERY conservative with my anticipated multiples, just as I was VERY conservative with my revenue and profit margins. I decided, due to the uncertainty and the re-rating of multiples in the market, to set the conservative case as a multiple of 20, the base case as a multiple of 30, and the best case as a multiple of 40. As I mentioned, these anticipated multiples are VERY conversative, but are realistic due to the newness of the company, and the pessimism weighing on the markets. So even the "best" case comes in lower than their fintech peers current market multiples. I then created a rubric in which one side had the three forward PEs I calculated (the generous, base, and best case forward PEs), and the other side had the three anticipated accepted market multiples (the generous, base, and best case PEs). I then calculated within this rubric the percentage difference between the three calculated forward PEs with the three anticipated market multiples, creating nine potential outcomes. Using the conservative forward PE calculation there would have to be an increase of 36.3224% to get to the conservative multiple, a 104.4836% increase to get to the base case multiple, and a 72.6448% increase to get to the best case multiple. Using the base case forward PE calculation, there would have to be a 71.33% increase to get to the conservative multiple, a 156.9955% increase to get to the base case multiple, and a 242.6606% increase to get to the best case multiple. Then for the best case forward PE calculation: there would need to be a 81.7632% increase to get to the conservative multiple, an 172.6448% increase to get to the base case multiple, and a 263.526% increase to get to the best case multiple. I then created another rubric in which I evaluated the percent chance of each of these cases happening. There are a total of 9 potential cases (because there are three cases of what their forward PE is calculated to be, and three different cases of what the ACCEPTED and tradeable multiple is in the market). Being VERY conservative again, I believe there is a 40% chance the conservative forward PE calculation is correct, a 40% chance the base case forward PE calculation is correct, and a 20% chance the best case forward PE calculation is correct. Then on the other axis, I believe there is a 40% chance the accepted market multiple will be on the conservative side of 20PE, a 40% chance of the accepted market multiple being the base case of 30PE, and a 20% chance of the accepted market multiple being the best case of 40PE. Cross multiplying these percentage chances within the table gives us the following percentage chances across the nine possibilities: A 16% that both the earnings AND the market multiple will be the conservative case. A 16% chance that the earnings will be conservative, but the market multiple will be base case. An 8% chance that the earnings will be conservative, but the market multiple will be best case. A 16% chance that the earnings will be base case, but the market multiple will be conservative. A 16% chance that both the earnings AND the market multiple will be base case. An 8% chance that the earnings will be base case but the market multiple will be best case. A 8% chance that the earnings will be best case but the market multiple will be conservative. An 8% chance that the earnings will be best case but the market multiple will be base case. And a 4% chance that both the earnings AND the market multiple will be best case. I then combined the two rubrics: the percentage increase in stock value for the nine possible outcomes, and the probability of the nine outcomes and multiplied the associated stock increase by the anticipated probability of that outcome. This gives us a probability adjusted price target for coinbase across all nine potential outcomes. Once you add all these probability adjusted outcomes together you get a 123.179209% anticipated increase of stock price. Going off the current price levels in which our calculations were based, that means that the 2022 earnings adjusted price target for Coinbase should be $251.55/share. All of these calculations began by using the ACTUAL trading volumes. We KNOW that the trading volume for Q1 2022 was 307,744,400,239. The rest of these calculations were based on historic figures and profit margins. In order to account for the pessimistic tones of the market and economic headwinds, I used VERY conservative margins. In order to adjust for potential discrepancies in margins and forward PEs, I used three cases for margins, and three cases for market multiples. I accounted for EVERY possible outcome. I firmly believe, that even on a conservative note, this stock is very oversold. The IPO price was WAY too high, I agree. But this demolition of Coinbase stock price is unwarranted and completely manipulative. The fair value of Coinbase stock by the end of this year should be $251.55. This is right on with how the stock traded through May 2021 - October 2021 before the market unjustifiably destroyed the stock. There IS potentially upside of 123.179209% on this stock at current levels. And I rate Coinbase a strong buy.

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Coinbase Price Target Analysis

May 3, 2022

bullish

general Analysis

[6 min Read]

Hello everyone! I prepared a valuation analysis for this stock and wanted to share my results:

First of all, I went onto nomics.com and downloaded the historical trading volumes for coinbase. I took the daily trading volumes for each day of the first quarter and summed them up. The total dollar amount of trading activity on Coinbase for Q1 2022 was: $307,744,400,239.

I then looked at Coinbase most recent quarterly report, the Q4 2021 report. Listed in this report is the financials and trading volumes for the 5 preceding quarters. The trading volumes went as such: Q4 2020 - 89B, Q1 2021 - 335B, Q2 2021 - 462B, Q3 2021 - $327B, Q4 2021 - 547B.

I then looked at the net trading revenues from these quarters, and they go as follows: 497M, 1.597B, 2.033B, 1.235B, and 2.49B. I divided the revenues by the associated trading volumes for each quarter to get what percentage of trading volume was collected as fee revenue. This rate was fairly similar in all quarters and averaged to be 0.461615%. This means that 0.461615% of trading volume has historically been collected as fee revenue for Coinbase. Applying this historic percentage to Q1 2022s trading volume of 307,744,400,239 , we find that the net trading revenues would be $1,420,592,930.09.

Well this is just the projected revenue for this quarter, but how about the earnings?

Well the quarterly report also shows the profitability of Coinbase for the 5 preceding quarters and they go as such: Q4 2020 - Revenue of 497M, and Net Income of 177M. Q1 2021 - Revenue: 1.597B, NI: 771M. Q2 2021 - Revenue: 2.033B, NI: 1.606B. Q3 2021 - Revenue: 1.235B, NI: 406M. Q4 2021 - Revenue: 2.490B, NI: 840M. I then divided the net income by the revenues to find the profit margin and they are all pretty similar across all the listed quarters. The profitability is around 32-40% each quarter, besides Q2 2021 where profitability was a whopping 78.99656%. That quarter was definitely an outlier, to the positive side. However, I wanted my valuation to be VERY conservative, so I decided to completely cut out this positive outlier, as it pulled the average profit margin much higher. Including this outlier, the average profit margin was 45.8995388%, without the outlier it was an average of 37.70407%. We will use that conservative average, and make that our "base case" profit margin. In order to account for possible increases or decreases in profitability, I constructed a three case analysis. I took the average historic profit margin (37.70407%) as the base case, a significantly lower profit margin of 30% (which is lower than ANY previous quarter) as my conservative case, and a 40% (higher end of historical margins) as my generous or "best case".

The three cases came to the following potential net incomes for Q1 2022: Conservative case: $426,177,879.03; Base case: $535,621,393.47; Generous/Best case: $568,237,172.04.

I then took these three potential cases of quarterly profit and calculated the forward P/E ratios at the three different earnings levels. The conservative margins equate to an annual net income (earnings) of 1,704,711,516.11 for 2022; the base case annual net income is 2,142,485,573.89 for 2022; the generous/best case annual net income is 2,272,948,688.14 for 2022.

This means that at the current price level of Coinbase, the forward P/Es would be: 14.67110403 for the conservative case, 11.67335748 for the base case, and 11.00332803 for the best case.

We then have to decide what multiple the market will accept as a fair multiple for Coinbase. Coinbase is a fintech company in the cryptocurrency space, and therefore commands a higher multiple. Many fintech stocks trade at a 200+ multiple, other more established brands such as Visa and Mastercard trade around 35-45. Others, such as Paypal, are currently trading around 25. Due to the many macroeconomic and geopolitical factors weighing on market valuations at the moment, I decided to be VERY conservative with my anticipated multiples, just as I was VERY conservative with my revenue and profit margins. I decided, due to the uncertainty and the re-rating of multiples in the market, to set the conservative case as a multiple of 20, the base case as a multiple of 30, and the best case as a multiple of 40. As I mentioned, these anticipated multiples are VERY conversative, but are realistic due to the newness of the company, and the pessimism weighing on the markets. So even the "best" case comes in lower than their fintech peers current market multiples.

I then created a rubric in which one side had the three forward PEs I calculated (the generous, base, and best case forward PEs), and the other side had the three anticipated accepted market multiples (the generous, base, and best case PEs). I then calculated within this rubric the percentage difference between the three calculated forward PEs with the three anticipated market multiples, creating nine potential outcomes.

Using the conservative forward PE calculation there would have to be an increase of 36.3224% to get to the conservative multiple, a 104.4836% increase to get to the base case multiple, and a 72.6448% increase to get to the best case multiple. Using the base case forward PE calculation, there would have to be a 71.33% increase to get to the conservative multiple, a 156.9955% increase to get to the base case multiple, and a 242.6606% increase to get to the best case multiple. Then for the best case forward PE calculation: there would need to be a 81.7632% increase to get to the conservative multiple, an 172.6448% increase to get to the base case multiple, and a 263.526% increase to get to the best case multiple.

I then created another rubric in which I evaluated the percent chance of each of these cases happening. There are a total of 9 potential cases (because there are three cases of what their forward PE is calculated to be, and three different cases of what the ACCEPTED and tradeable multiple is in the market). Being VERY conservative again, I believe there is a 40% chance the conservative forward PE calculation is correct, a 40% chance the base case forward PE calculation is correct, and a 20% chance the best case forward PE calculation is correct. Then on the other axis, I believe there is a 40% chance the accepted market multiple will be on the conservative side of 20PE, a 40% chance of the accepted market multiple being the base case of 30PE, and a 20% chance of the accepted market multiple being the best case of 40PE.

Cross multiplying these percentage chances within the table gives us the following percentage chances across the nine possibilities: A 16% that both the earnings AND the market multiple will be the conservative case. A 16% chance that the earnings will be conservative, but the market multiple will be base case. An 8% chance that the earnings will be conservative, but the market multiple will be best case. A 16% chance that the earnings will be base case, but the market multiple will be conservative. A 16% chance that both the earnings AND the market multiple will be base case. An 8% chance that the earnings will be base case but the market multiple will be best case. A 8% chance that the earnings will be best case but the market multiple will be conservative. An 8% chance that the earnings will be best case but the market multiple will be base case. And a 4% chance that both the earnings AND the market multiple will be best case.

I then combined the two rubrics: the percentage increase in stock value for the nine possible outcomes, and the probability of the nine outcomes and multiplied the associated stock increase by the anticipated probability of that outcome. This gives us a probability adjusted price target for coinbase across all nine potential outcomes.

Once you add all these probability adjusted outcomes together you get a 123.179209% anticipated increase of stock price. Going off the current price levels in which our calculations were based, that means that the 2022 earnings adjusted price target for Coinbase should be $251.55/share.

All of these calculations began by using the ACTUAL trading volumes. We KNOW that the trading volume for Q1 2022 was 307,744,400,239. The rest of these calculations were based on historic figures and profit margins. In order to account for the pessimistic tones of the market and economic headwinds, I used VERY conservative margins. In order to adjust for potential discrepancies in margins and forward PEs, I used three cases for margins, and three cases for market multiples. I accounted for EVERY possible outcome. I firmly believe, that even on a conservative note, this stock is very oversold. The IPO price was WAY too high, I agree. But this demolition of Coinbase stock price is unwarranted and completely manipulative.

The fair value of Coinbase stock by the end of this year should be $251.55. This is right on with how the stock traded through May 2021 - October 2021 before the market unjustifiably destroyed the stock. There IS potentially upside of 123.179209% on this stock at current levels. And I rate Coinbase a strong buy.

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COIN

Coinbase Global, Inc.

48.35

-0.69
-1.41%

Return

-60.16%
Change % Since Posting
-73.02
Change Since Posting
121.37
Price When Posted

Metrics

251.55
Target Price
9/ 10
Confidence
2-6 Months
Timeframe
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