Coinbase Global Inc. (COIN) provides financial infrastructure and technology to the cryptocurrency industry in the United States and worldwide. The company offers retailers the primary financial account in the crypto economy, a marketplace with a liquidity pool for institutions to transact in crypto assets.
However, Veritaseum Capital LLC has recently sued COIN, alleging that the crypto exchange infringes on a patent granted to Veritaseum founder Reggie Middleton. According to Veritaseum, Coinbase has exploited the patent for some of its blockchain technology, and the business is demanding at least $350 million in damages.
In addition, COIN shares fell 4.2% to a two-month low on Friday after J.P. Morgan analyst Kenneth Worthington maintained his neutral rating but reduced his price target by 23% to $60, which is less than 1% below current levels, citing deteriorating crypto trading.
The company’s shares are down 72.9% over the past year and 75% year-to-date to close its last trading session at $63.05. In addition, the stock is currently trading 82.9% below its 52-week high of $368.90, which it hit on November 9, 2021.
Here's what could shape COIN's performance in the near term:
Inadequate Financials
COIN's total revenue decreased 63.7% year-over-year to $808.33 million for the second quarter ended June 30, 2022. Its operating loss came in at $1.04 billion, compared to an operating income of $874.73 billion in the prior-year quarter.
The company reported a net loss of $1.09 billion, compared to a net income of $1.60 billion. Its loss per share amounted to $4.98. In addition, its cash and cash equivalents came in at $5.68 billion, representing a decline of 20.2% for the six months ended June 30, 2022.
Negative Profit Margins
COIN's trailing-12-month CAPEX/Sales multiple of 0.11% is 93.4% lower than the industry average of 1.7%. Also, its trailing-12-month ROA, net income margin, and ROE are negative 0.26%, 4.8%, and 2%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.10% is 51.5% lower than its industry average of 0.20%.
Poor Growth Estimates
Street expects the company’s EPS and revenue to decline 180.7% and 57%, respectively, in the current fiscal year. Also, its EPS is expected to remain negative in the current and next year. In addition, COIN failed to surpass the consensus EPS estimates in two of the trailing four quarters. Moreover, analysts expect its EPS to decline 45.1% per annum over the next five years.
POWR Ratings Reflect Bleak Outlook
COIN has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. COIN has an F grade for Stability and a D for Quality. The stability grade indicates the stock’s higher volatility than its peers. In addition, its poor profitability is in sync with the Quality grade.
Of the 147 stocks in the F-rated Software – Application industry, COIN is ranked last.
Beyond what I've stated above, you can view COIN ratings for Growth, Momentum, Value, and Sentiment here.
Bottom Line
Shares of COIN have plunged 5.5% over the past month. Also, it is currently trading below its 50-day and 200-day moving averages of $73.44 and $130.56, respectively, indicating a bearish sentiment. Furthermore, the stock could retreat further, given the ongoing lawsuit and poor analyst estimates.
Given its weak financials, poor growth projections, and negative profit margins, we think the stock is best avoided now.
How Does Coinbase Global Inc. (COIN) Stack Up Against Its Peers?
While COIN has an overall F rating, one might want to consider its industry peers, Commvault Systems Inc. (CVLT), Rimini Street Inc. (RMNI), and eGain Corporation (EGAN), which have an overall A (Strong Buy) rating.
COIN shares were trading at $65.61 per share on Wednesday afternoon, up $2.56 (+4.06%). Year-to-date, COIN has declined -74.00%, versus a -21.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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