For growth investors seeking exposure to the burgeoning cryptocurrency market, there's no better option than Coinbase.
During the crypto winter of 2022, Coinbase Global (COIN 2.01%) shares fell more than 90% as activity on its crypto trading platform dried up. But as the crypto market built momentum and Coinbase continued to increase its product offerings, its stock has climbed more than 500% since the beginning of 2023 in what might be the ultimate comeback story.
Although hindsight is always 20/20, it's clear that investing during those dismal days in 2022 would have been the most opportunistic time. For those of you who have been following my coverage of Coinbase, you would have seen this opportunity and be comfortably up more than 300%.
Those days have since passed, but one thing remains true; Coinbase is undervalued and misunderstood. Here's where the company might be headed and whether it has what it takes to make some new millionaires.
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A true growth story
Coinbase's initial public offering (IPO) in 2021 is often used as a starting point for many evaluations. However, this perspective is too focused. Coinbase has more than a decade of experience behind it. To properly account for its potential trajectory, we must go back further.
Consider its user growth. Back in 2018, there were about 23 million verified users on Coinbase. Today, that number has reached nearly 120 million, a 400% increase. Should the number of users continue to increase at a compound annual growth rate (CAGR) of 31%, Coinbase could see its total user base reach more than 1.7 billion in the next 10 years, roughly the same number of users on Instagram today.
As more users flocked to the platform, revenue also skyrocketed. In 2019, Coinbase generated around $533 million in revenue. Based on the most recent earnings report, total revenue for 2023 reached a whopping $3.15 billion, a near 500% increase in just four years, representing a CAGR of 41%. If Coinbase can keep increasing revenue at this clip, its annual revenue could reach nearly $100 billion by 2034. That would put it on a similar level to companies like Bank of America or Tesla today.
Adding to its growth potential, Coinbase possesses an incredibly efficient and productive business model. With profit margins greater than 85%, $100 billion in annual revenue would make it as profitable as some of the most prominent companies on the market, such as Alphabetor JPMorgan Chase.
The ultimate comparison
It's clear that Coinbase is no stranger to significant growth. Should the future unfold like the past, then Coinbase should see its stock soar to new heights. But just how high?
Based on its light and agile business model, plus the role of a network effect that increases profits exponentially on a per-user basis, Coinbase possesses many similarities to another well-known company, Meta Platforms (META 1.54%).
Both operate scalable digital platforms with minimal costs as user bases expand. In addition, these platforms leverage network effects to enhance revenue. With more users overall, platform value increases and fosters a self-reinforcing cycle of growth. Perhaps the most striking similarity comes from their position on the technological frontier.
A decade ago, social media was an up-and-coming phenomenon that grew at an exponential rate. Fast forward to today, and cryptocurrencies are experiencing a similar growth trajectory, one that could make Coinbase the Meta of crypto and could send its total valuation to more than $1 trillion, up from about $52 billion now. To read more on how Coinbase resembles Meta, check out this article.
Time to crunch some numbers
If Coinbase rises to a market cap of $1 trillion, then its stock would be worth more than $4,000 a share, roughly a 1,550% increase from today's prices. This means that for someone to reach millionaire status, it would require an investment of about $60,000. Maybe you are one of those people with that type of cash on hand, but for the majority of people, this would put Coinbase's millionaire-making abilities out of reach.
However, it should be noted that it is rarely the case that one stock makes people millionaires. The more typical path to achieving millionaire status is through a well-structured portfolio with several high-growth companies. In this regard, Coinbase becomes a staple for growth-oriented investors.
As the world comes to understand crypto better and more investors begin to explore its potential, Coinbase is perfectly suited to keep on growing. Blockchains and cryptocurrency are in many ways similar and just as disruptive to finance as smartphones and the internet have been for communication and information. Only time will tell just how far Coinbase climbs, but as it currently stands, it remains my top stock and one that could help investors get a little closer to becoming a millionaire one day.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. RJ Fulton has positions in Coinbase Global and Tesla. The Motley Fool has positions in and recommends Alphabet, Coinbase Global, JPMorgan Chase, Meta Platforms, and Tesla. The Motley Fool has a disclosure policy.
