Should I buy Coinbase shares at the current price?

Coinbase (NASDAQ: COIN) shares made their debut through an Initial Public Offering (IPO) last month. Since then the stock has fallen and is down approximately 20%. So is now a buying opportunity?

I commented on Coinbase shares after its IPO. I said I’d watch the stock then and I’ll still monitor it now. It’s interesting that the company released its first-quarter 2021 results last week. I think the numbers are worth a closer look.

The results

I’m not surprised that the Q1 2021 numbers were strong. Coinbase has indicated that it’s “seeing unprecedented levels of interest in the crypto-economy”. And it’s certainly reflected in the figures for the first three months of the year.

Net revenue for the quarter tripled to $1.6bn from the previous quarter. Of this, $1.5bn was from transactional revenue and $56.4m was from Coinbase’s subscription services. It’s worth noting here that this quarter’s transaction revenue marks the first for that period that exceeded the $1bn marker. I think this is pretty impressive.

Other things to note are that the company ended the quarter with 56m verified users. This was up from 43m in the previous quarter. And net income for Q1 2021 increased significantly from $177m to $771m.

I think it’s clear that the cryptocurrency platform had a fantastic first three months of the year. In the company’s shareholder letter, it stated that “the wind is in our sails right now, and it feels good”. And I’m sure it does when things are looking rosy. But I’ve some concerns.

What’s happening with Coinbase shares?

So if the numbers look great, why is this not reflected in the share price? That’s the question I’m constantly asking myself. Well, I think it’s because of the volatile nature of cryptocurrency

There has been a surge in cryptocurrency values and mining, especially the most popular one, Bitcoin. But I reckon most investors are concerned whether this boom is going to last. The first-quarter results are stellar but can Coinbase replicate this in the next three months? I’m unsure it can.

It’s worth noting that the company’s revenue is largely dependent on its users buying and selling cryptocurrencies. Coinbase can then charge a transactional fee. So if the number of people trading these digital assets falls, then its revenue is likely to decrease too. 

The company admits that its business “is inherently unpredictable”. It doesn’t help when Elon Musk, the founder and CEO of Tesla says that it will no longer accept vehicle purchases in Bitcoin due to climate change concerns. Of course, this is going to have a negative impact on cryptocurrencies and Coinbase shares, at least in the short term.

My view

I think the acceptance of cryptocurrencies is improving, but it still has a long way to go. Coinbase has made these digital assets accessible to the wider population. But it’s still a young and volatile industry.

For now, I’ll still be monitoring Coinbase shares. The company’s fantastic results don’t match the performance of the stock price. Clearly it’s linked to how Bitcoin and cryptocurrencies are performing. But for now, I’m watching the company very closely.