Coinbase (COIN)

Blockchain infrastructure company Coinbase (NASDAQ:COIN) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 24.2% year on year to $2.03 billion. Its non-GAAP profit of $1.94 per share was 1.9% below analysts’ consensus estimates.

Company Overview

Widely regarded as the face of crypto, Coinbase (NASDAQ:COIN) is a blockchain infrastructure company updating the financial system with its trading, staking, stablecoin, and other payment solutions.

Financial technology companies benefit from the increasing consumer demand for digital payments, banking, and finance. Tailwinds fueling this trend include e-commerce along with improvements in blockchain infrastructure and AI-driven credit underwriting, which make access to money faster and cheaper. Despite regulatory scrutiny and resistance from traditional financial institutions, fintechs are poised for long-term growth as they disrupt legacy systems by expanding financial services to underserved population segments.

Coinbase’s competitors include Robinhood (NASDAQ:HOOD) and private companies like Binance, Kraken, Gemini, and Crypto.com.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Coinbase’s sales grew at an incredible 60.3% compounded annual growth rate over the last five years. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within consumer internet, a half-decade historical view may miss new innovations or demand cycles. Coinbase’s annualized revenue growth of 57.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Coinbase generated an excellent 24.2% year-on-year revenue growth rate, but its $2.03 billion of revenue fell short of Wall Street’s high expectations.

Looking ahead, sell-side analysts expect revenue to grow 12.3% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above the sector average and suggests the market is baking in some success for its newer products and services.

User Growth

As a fintech company, Coinbase generates revenue growth by increasing both the number of users on its platform and the number of transactions they execute.

Over the last two years, Coinbase’s monthly transacting users, a key performance metric for the company, increased by 1.2% annually to 9.7 million in the latest quarter. This growth rate is one of the lowest in the consumer internet sector. If Coinbase wants to accelerate growth, it likely needs to engage users more effectively with its existing offerings or innovate with new products.

In Q1, Coinbase added 1.7 million monthly transacting users, leading to 21.3% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in fees from each user. ARPU also gives us unique insights into the average transaction size on Coinbase’s platform and the company’s take rate, or "cut", on each transaction.

Coinbase’s ARPU growth has been exceptional over the last two years, averaging 61.5%. Its ability to increase monetization while growing its monthly transacting users demonstrates its platform’s value, as its users are spending significantly more than last year.

This quarter, Coinbase’s ARPU clocked in at $209.72. It grew by 2.5% year on year, slower than its user growth.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For fintech businesses like Coinbase, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include transaction/payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard customers, such as identity verification.

Coinbase’s gross margin is one of the best in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 86.1% gross margin over the last two years. Said differently, roughly $86.05 was left to spend on selling, marketing, and R&D for every $100 in revenue.

Coinbase produced a 85.1% gross profit margin in Q1, marking a 1.6 percentage point decrease from 86.7% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Coinbase grow from a combination of product virality, paid advertisement, and incentives.

Coinbase is extremely efficient at acquiring new users, spending only 14.3% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Coinbase the freedom to invest its resources into new growth initiatives while maintaining optionality.

Investors frequently analyze operating income to understand a business’s core profitability. Similar to operating income, EBITDA is a common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of profit potential.

Coinbase has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 45.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Coinbase’s EBITDA margin decreased by 8.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Coinbase generated an EBITDA profit margin of 45.7%, down 16.2 percentage points year on year. Since Coinbase’s EBITDA margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Coinbase’s EPS grew at an astounding 56.2% compounded annual growth rate over the last five years. However, this performance was lower than its 60.3% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Coinbase’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Coinbase’s EBITDA margin declined by 8.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Coinbase reported EPS at $1.94, down from $3.90 in the same quarter last year. This print slightly missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Coinbase’s full-year EPS of $9.09 to shrink by 20.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Coinbase has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer internet sector, averaging 25.9% over the last two years.

Taking a step back, we can see that Coinbase’s margin dropped meaningfully over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Coinbase burned through $182.7 million of cash in Q1, equivalent to a negative 9% margin. The company’s cash flow turned negative after being positive in the same quarter last year, which isn’t ideal considering its longer-term trend.

Companies with more cash than debt have lower bankruptcy risk.

Coinbase is a profitable, well-capitalized company with $8.05 billion of cash and $4.51 billion of debt on its balance sheet. This $3.54 billion net cash position is 7.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.5% to $201.25 immediately after reporting.

Updated: May 15, 2025 at 10:30 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Coinbase.

There are multiple reasons why we think Coinbase is an amazing business. For starters, its revenue growth was exceptional over the last five years. And while its projected EPS for the next year is lacking, its admirable gross margins are a wonderful starting point for the overall profitability of the business. On top of that, Coinbase’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Coinbase’s EV/EBITDA ratio based on the next 12 months is 19x. Looking at the consumer internet landscape today, Coinbase’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $257.26 on the company (compared to the current share price of $242.65), implying they see 6% upside in buying Coinbase in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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