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I bought a *very small* starter position in Coinbase $COIN this morning at ~$240, and am willing to buy more if it continues dropping from here.
Here's my rationale:
First, the short term.
$COIN trades at ~$63 billion market cap @ current prices. I conservatively think they'll earn ~$4.7 billion in revenue & ~$2 billion in net income this year (model snippet below):pic.twitter.com/tjycpkOrlK
My volume projections are still pretty conservative given YTD performance. Volumes would need to fall off a cliff for Coinbase to not hit $5 billion in revenue this year. Possible, but unlikely.pic.twitter.com/1asD7MzJ9b
At $5 billion in revenue & conservative 45% net margins, $COIN is currently trading for ~27x this year's earnings. Certainly not nosebleed valuations considering where it IPO'd.
This year may very well be an anomaly volume-wise, but NO ONE knows what steady state crypto volumes should be.
In the absence of a good long-term forecast, I turn to the Virtu principle: $COIN is now a "cheap" crypto vol call option.
Another benefit of owning $COIN is I can be long crypto vol without betting on a particular coin. Bitcoin out of style? No problem, Ethereum made up a big % of Coinbase volumes last quarter. Etc etc with smaller coins in the future.
There's also the Coinbase user growth angle to consider, which has been strong as of late. Top position on the app store gives us clues:https://twitter.com/goodalexander/status/1392917656160833546?s=20 …
Can it keep going down? Absolutely. Could volumes dry up? Absolutely. Is it cheap enough now to take the risk? I believe so. Questions/feedback welcome.
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