2022 was a brutal year for the cryptocurrency market due to several setbacks, including geopolitical tensions and global macro headwinds. The failure of stablecoin terraUSD, liquidity issues across the crypto market, and the dramatic collapse of the crypto exchange FTX dampened investor sentiment about cryptocurrency, dragging down major digital currencies.

Overall, the crypto market lost more than $2 trillion in 2022, and the top cryptocurrency, Bitcoin (BTC), lost over 60% of its value last year.

The crypto market is expected to keep suffering this year since the rising interest rate environment and growing recession fears will keep investors away from such highly risky assets. Also, the fallout from the collapse of the FTX exchange continued in January as crypto lender Genesis filed for bankruptcy.

Meanwhile, Officials in Joe Biden’s administration urged Congress to “step up its efforts” in regulating the crypto market. Given this backdrop, it could be wise to avoid struggling crypto-focused stock Coinbase Global, Inc. (COIN) despite Cathie Wood’s significant investment in the stock. Cathie Wood’s ARK Invest has spent approximately $30 million on the stock this year. COIN has around 4.42% ARK ownership.

COIN reported disappointing results for the fourth quarter of fiscal 2022. The company’s net revenue totaled $605 million, down 75.7% year-over-year. Its net loss was $557 million, compared to a net income of $840 million in the fourth quarter of 2021.

Wall Street analysts are also turning against the stock, given its deteriorating financials, growing regulatory concerns, and bleak crypto outlook. On January 11, 2023, Bank of America analysts downgraded COIN to underperform and lowered its price target to $35 from $50. Also, on January 5, analysts at investment firm Cowen downgraded the stock to perform from outperform and cut its price target from $75 to $36.

COIN shares have plunged 13.2% over the past six months and 64.9% over the past year to close the last trading session at $62.07. The stock is currently trading 70% below its 52-week high of $206.79, which it hit on March 29, 2022.

Here is what could shape COIN’s performance in the near term:

Poor Financials

COIN’s total revenue decreased 74.8% year-over-year to $629.11 million in the fourth quarter that ended December 31, 2022. Its total operating expenses increased 24.9% year-over-year to $1.18 billion. The company’s operating loss was $554.87 million, compared to an operating income of $922.32 million in the prior-year period.

In addition, the company’s net loss came in at $557 million, compared to a net income of $840.21 million in the fourth quarter of 2021. Its net loss per share attributable to common shareholders was $2.46, compared to net income per share of $3.32 in the previous year’s quarter.

Unfavorable Analyst Estimates

Analysts expect COIN’s revenue for the first quarter (ending March 2023) to come in at $620.26 million, indicating a decline of 46.8% year-over-year. The company’s loss per share of $0.72 for the ongoing quarter is expected to widen 530.3% year-over-year to $0.72. Moreover, it has missed the consensus revenue estimates in three of the trailing four quarters, which is disappointing.

Furthermore, analysts expect COIN’s revenue for the current fiscal year (ending December 2023) to decrease 14.2% year-over-year to $2.74 billion. Also, the company is expected to report a loss per share of $2.79 and $1.82 for fiscal 2023 and 2024, respectively.

High Valuation

In terms of forward EV/Sales, COIN is currently trading at 4.23x, 123.5% higher than the industry average of 1.89x. The stock’s forward Price/Sales multiple of 4.48 is 76.4% higher than the industry average of 2.54. Likewise, its forward Price/Book of 2.67x is 133.8% higher than the industry average of 1.14x.

Low Profitability

COIN’s trailing-12-month EBITDA margin of 2% is 90.7% lower than the industry average of 21.57%. And its trailing-12-month net income margin of negative 24.35% compares to the industry average of 27.46%. In addition, its trailing-12-month CAPEX/Sales of 0.10% is 59.1% lower than the 1.67% industry average.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 22.08%, 0.24%, and 1.10% compare with the industry averages of 11.22%, 5.01%, and 1.17%, respectively.

POWR Ratings Reflect Bleak Prospects

COIN has an overall F rating, translating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. COIN has an F grade for Growth and Sentiment, in sync with its bleak financials and unfavorable analyst estimates. In addition, it has an F grade for Stability. The stock’s 24-month beta of 2.85 justifies the Stability grade.

The stock also has a D grade for Quality, consistent with its lower-than-industry profitability.

COIN is ranked last among 137 stocks in the D-rated Software-Application industry. 

Beyond what I have stated above, we have also given COIN grades Value and Momentum. Get all COIN ratings here.

Bottom Line

Due to dampened investor sentiment, COIN’s shares are trading 70% below its 52-week high. The company reported disappointing results for the third quarter of fiscal 2023. Also, its near-term prospects look bleak, with analysts expecting it to incur huge losses for at least two fiscal years.

Since the cryptocurrency market is expected to remain under pressure amid a rising interest rate environment and recession fears, the stock is expected to plunge further. Given its weak financials, unfavorable analyst estimates, poor profitability, and high valuation, we think this Cathie Wood stock is best avoided in 2023.

Stocks to Consider Instead of Coinbase Global, Inc. (COIN)

The odds of COIN outperforming in the weeks and months ahead are greatly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Software-Application industry instead: 

Open Text Corporation (OTEX)

Progress Software Corporation (PRGS)

eGain Corporation (EGAN)

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COIN shares were trading at $58.80 per share on Wednesday morning, down $3.27 (-5.27%). Year-to-date, COIN has gained 66.15%, versus a 4.34% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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