One company that’s been getting a lot of attention from investors this week is Coinbase (NASDAQ: COIN). Today, the cryptocurrency exchange firm has gone public via a direct listing.
Is this a growth stock I should consider for my portfolio? Let’s take a look at the investment case.
Coinbase: business description
Coinbase operates a cryptocurrency exchange platform that enables people to buy and sell crypto-assets such as Bitcoin, Ethereum, and Litecoin. Founded in 2012, the company now has more than 50m customers from over 30 countries, including the UK. Its customers include retail investors, institutional investors such as investment managers and hedge funds, and ecosystem partners.
Coinbase has listed on the tech-focused Nasdaq – the second-largest stock exchange in the world. Ahead of the share listing, the company’s valuation stood at around $65bn (£47bn) on a fully diluted basis, according to Nasdaq. To put that number into perspective, that’s about 16% higher than the value of the London Stock Exchange Group. However, the COIN share price is expected to open much higher than the $250 ‘reference price,’ meaning the company’s market cap will actually be much higher than $65bn. Â
Coinbase stock: the bull case
There are several things I like about Coinbase from an investment perspective.
The first is that the company is a leader in its industry. Due to its easy-to-use platform and good reputation, many see it as the best crypto platform. Techradar magazine, for example, has ranked the company as the top Bitcoin exchange for 2021.
Secondly, the company is growing rapidly. In the group’s recent first-quarter results, it reported:
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56m users, up 30% since the end of 2020
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Total revenue of approximately $1.8bn versus 2020 full-year revenue of $1.3bn
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Net income of approximately $730m–$800m versus 2020 full-year net income of $322m
These numbers suggest that Coinbase has a lot of momentum right now.
The bear case
I do have some concerns about Coinbase, however. One is that the company faces plenty of competition from rivals such as Binance and eToro. It’s worth noting that at the end of March, Coinbase only had an 11.3% crypto-asset market share. That’s quite low.
A second concern is that we don’t know for sure whether crypto-assets such as Bitcoin are here to stay. Yes, plenty of major companies such as Tesla and Mastercard have embraced crypto recently. However, we can’t be certain that crypto will really become mainstream. We don’t know what financial regulators will do about crypto in the years ahead. This adds risk to the long-term investment case for Coinbase.
A third concern is that in the past, the crypto industry has been highly cyclical. Since 2010, crypto markets have experienced four major price cycles. This means that, going forward, profits at Coinbase could be volatile. It also means it’s hard to make accurate forecasts for the company.
Finally, there’s the valuation. This looks quite high to me given a) revenues are still quite small and b) the company faces heavy competition from rivals.  Â
Coinbase shares: my move
Weighing everything up, I’m going to keep Coinbase shares on my watchlist for now. All things considered, I think there are better growth stocks I could buy.