Shares in crypto platform Coinbase (NASDAQ: COIN) have tanked recently. Yesterday, the stock was down about 30%. Meanwhile, over 12 months, the share price is down a whopping 80%.
So, what was behind yesterday’s share price fall? And has the massive decline here presented me with a good opportunity to buy the growth stock for my portfolio?
Why Coinbase’s share price fell yesterday
The reason Coinbase stock tanked yesterday was that the company posted very poor results for the first quarter of 2022 on Tuesday night.
For the period, revenue was down 35% year-on-year to $1.17bn. Wall Street had been expecting $1.48bn. Meanwhile, the group posted an adjusted loss of $1.98​​ per share for the quarter, versus earnings of $3.05 a year earlier. Analysts had been expecting EPS of $0.24. Trading volumes were down 44% on the previous quarter.
As for why the revenue and earnings figures were below estimates, it seems that interest in crypto-assets has declined recently on the back of rising interest rates and high levels of market volatility. The fact that major crypto-assets such as Bitcoin and Ethereum have fallen significant recently will no doubt have also played a role. According to CNBC, 40% of Bitcoin investors are now underwater. This changes the game dramatically in terms of the mindset towards crypto.
In its outlook, Coinbase said that it expected users and trading volume to decline in the current quarter compared to Q1. However, it noted that its outlook for 2022 is largely unchanged. And CEO Brian Armstrong said that the company tends to see down periods, or ‘crypto winters’ as they’re sometimes called, as big opportunities.
Bankruptcy disclosure
It’s worth noting that in a disclosure, Coinbase also revealed that in the event of bankruptcy, crypto-assets held by the group could be considered property of the bankruptcy proceedings and that customers may be treated as general unsecured creditors. This means customers would potentially be the last to be paid out in any bankruptcy. It said this disclosure might lead customers to believe that keeping their assets on the platform is risky, which could have an impact on its financial position in the future.
This development may have also impacted the share price. Having said that, Coinbase did clarify that it doesn’t foresee a bankruptcy event in the near future.
Should I buy Coinbase shares today?
As for whether I’d buy Coinbase stock today, I don’t see it as a good fit for my portfolio.
If I was really bullish on crypto, I could potentially see some appeal here. After all, Coinbase is one of the most dominant platforms in the crypto space. Not only does it have a strong brand but it also has a massive user base.
Yet realistically, I have no idea where crypto is going. The asset class may boom again in the next few years. Or it may continue underperforming. This uncertainty is an issue for me because it makes it impossible to forecast future revenues and earnings. That makes it hard to know the true value of the stock.
Given this uncertainty, and the fact that the P/E ratio here is still about 50, I’ll be leaving Coinbase on my watchlist for now.
All things considered, I think there are better growth stocks to buy today.