Coinbase (COIN):
Coinbase is a $50bn mkt cap exchange, with a typically advantaged 'exchange' business model, that just happens to service the worlds most volatile asset class.
A large proportion of the market believes:
Crypto excitement is nothing more than an expression of easy money policy
Crypto is full of fraud, money laundering and has limited value.
2021 is an exceptional year: COIN EPS ests shot to $12. I.e. it is trading at 19x PE, what is an assumedly peak number. Estimating a normalised number is very challenging.
The market is not wrong on any of the above, but because of these short-term factors investors may be missing the long-term opportunity. We think blockchain and crypto will change the world, making COIN an attractive long term bet:
Our upside scenario has 2022 EBITDA of $3.5b (+50% vs. consensus)
A critical bet in owning Coinbase is that Crypo goes mainstream, hence a lot of our time was spent on the drivers of this. We think it is in the process of happening as evidenced by growing institutional interest in the asset class.
Regulation: again, necessary to go mainstream. U.S. is an outlier in terms of lack of clarity.
Another longer term bet is that Coinbase becomes a SuperApp, given the advantages it has we believe this is possible. Crypto is the first truly borderless global financial product.
Coinbase has an advantaged customer acquisition model - Estimate an LTV to CAC of >10x, currently closer to 20x, and the ability to cross sell many financial products.
Potential Upside: $364(+49%)
Sensible Downside: $219(-11%)
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