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Bitcoin
has been on the upswing again, and was recently trading at $48,000, but
Coinbase Global
has not been getting much benefit. It has had only a 10% bounce since late July, even as Bitcoin has risen 60% over that period.
That disconnect is not worth worrying about, however, according to a new report from Needham analyst John Todaro, who initiated coverage on the stock on Tuesday with a Buy rating and a $420 price target.
Coinbase
(ticker: COIN) is more than a crypto-trading site, and will gain in value as it becomes an on-ramp for more activities related to the industry, Todaro argues. On Tuesday, it was trading up 0.1%, to $256.27.
Among the services Coinbase is now offering is staking, a process that allows crypto owners to contribute their assets to pools that help validate transactions on blockchains, and earn money doing it. Coinbase takes 25% of the fee given to those who contribute their assets to the pools, and passes the rest along to users. It’s still a small part of the company’s revenue base, but it rose 271% quarter over quarter and Todaro calls it “a major growth area for Coinbase.” Coinbase is also launching other yield-bearing accounts that can help the company move beyond transactions.
The bearish case against Coinbase is that it charges high fees for each transaction, and will lose customers to companies like
Robinhood Markets
(HOOD), which does not charge upfront fees. Robinhood makes money from crypto in a similar way that it makes money from stocks, by taking a cut of the spread between the bid and ask prices on each transaction. In its latest quarter, Robinhood saw a huge jump in crypto trading, particularly for
Dogecoin.
“We’re very proud of the pricing and the cost that we offer to customers and especially relative to our competitors,” said Robinhood CEO Vlad Tenev on the company’s earnings call last week. “Some companies are charging multiple percents transaction fees and commissions. And Robinhood has been commission-free, and we’re proud of the deal that we offer, and I think customers choose us for that.”
Robinhood differs from Coinbase, however, in that users don’t hold their own crypto, given that they can’t transfer it off the platform.
Coinbase CFO Alesia Haas said on the company’s latest earnings call that “we do not compete on fees. And instead of focusing on being the lowest priced platform, we focus on providing the most value to customers, through our custody, our security and storage, in addition to trade execution, which is critical for bearer instruments like crypto.”
Todaro thinks that Coinbase’s fees are unlikely to drive users away because of the unique nature of cryptocurrencies. While stock-trading fees have fallen to zero for nearly all brokerage firms, crypto trading hasn’t been commoditized in the same way, given that owning and trading tokens is more complicated than dealing with stocks. Surveys have shown that users are more interested in an exchange or trading platform’s liquidity, uptime, and the range of tokens available, he says.
“In our view, Coinbase has done a good job of offering new assets and new products in a regulatory compliant manner, maintaining uptime, offering deep liquidity pools, and ensuring exchange reliability, as evidenced by the lack of a successful exchange hack,” he wrote.
Write to Avi Salzman at avi.salzman@barrons.com
