Morningstar Issues Cautious Coinbase Evaluation, Rating Stock Significantly Overvalued With Fair Value Estimate of $150 Per Share

This report analyzes the company's business model, profit drivers, valuation metrics, and risks, along with actionable levels and investment insights

Coinbase Global Inc. (COIN), the largest U.S.-based cryptocurrency exchange, has drawn a cautious evaluation from Morningstar, with a fair value estimate of $150 per share and a commentary on the company's strengths and weaknesses in the dynamic cryptocurrency market. Here's a closer look at Morningstar's analysis and key takeaways.

Coinbase is a leading cryptocurrency exchange that benefits from rising crypto prices and streamlined costs. However, it faces regulatory risks, such as the SEC lawsuit, and its business is tied to the volatile crypto market.

Coinbase is valued at $150 per share by Morningstar, which is significantly lower than its current trading price of $270.65. This translates to a downside of around 44% from the present price.

Coinbase lacks an economic moat, highlighting the challenges in establishing a durable competitive edge in the cryptocurrency space.

Transaction fees and interest income from the USDC partnership are identified as the primary profit drivers for Coinbase.

Coinbase is licensed in New York as a virtual currency exchange and has applied for a charter from the Federal Reserve to become a bank holding company. However, the company's status as a cryptocurrency exchange and custodian places it within the jurisdiction of various regulatory bodies, including the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).

Coinbase's business strategy revolves around providing a platform for cryptocurrency trading, custody, and brokerage services. The company caters to both retail and institutional traders, aiming to capitalize on the growing adoption and utilization of digital assets.

In a sector often marred by fraud and volatility, Coinbase has cultivated a reputation for operating a secure and regulatory-compliant exchange. This standing has proven instrumental in attracting and retaining customers within a competitive and rapidly evolving market.

However, Coinbase's business model is heavily reliant on cryptocurrency trading fees, which are directly tied to the speculative and cyclical nature of crypto markets. This reliance poses inherent risks, especially considering the volatility and regulatory uncertainty surrounding cryptocurrencies.

Coinbase is facing a class-action lawsuit from customers who allege that the company engaged in deceptive practices by promoting and selling unregistered securities through its staking service. The lawsuit was filed in response to a SEC statement that crypto exchanges may face legal action for offering unregistered securities.

Coinbase is also facing a lawsuit from the SEC over allegations that its Lend program violated securities laws. The SEC claims that the program, which allowed customers to earn rewards by lending out their crypto assets, should have been registered as a securities offering.

Technical Analysis and Investment Levels for COIN

Coinbase's stock price has been fluctuating within a recent range, with key levels identified by technical analysis. These levels can provide traders with potential areas of support and resistance for short-term price movements.

Support Levels: $250, $230 Resistance Levels: $280, $300 Fibonacci Levels Using a recent high of $310 and a low of $200, the following levels apply:

23.6% Retracement: $230 50% Retracement: $255 61.8% Retracement: $275 A breakout above $280 could lead to further upward momentum toward $300, while a breach below $250 may push the stock down to $230.

Valuation Metrics and Competitor Comparison CME Group (CME) has a fair value estimate of $225 and a market cap of $83.78 billion, boasting a wide economic moat.

Block Inc. (SQ), on the other hand, carries a fair value estimate of $90 and a market cap of $57.12 billion. While Coinbase focuses on cryptocurrencies, both CME Group and Block Inc. operate diversified financial businesses that could offer more stable revenue streams.

Coinbase is compared to other companies in the financial sector by Morningstar. Both CME Group and Block Inc. are assigned lower fair value estimates and higher market caps.

Coinbase benefits from its crypto focus, while competitors like CME Group and Block Inc. have diversified financial businesses.

Profit Drivers and Financial Performance Analysis As the largest U.S.-based cryptocurrency exchange, Coinbase generates the majority of its revenue from retail trading fees. These fees are directly tied to the volume and prices of cryptocurrencies, which can fluctuate dramatically.

Coinbase's partnership with Circle to launch the USDC stablecoin contributes a significant portion of the company's total interest income. However, with interest rates expected to decline in the future, this revenue stream may also decrease.

Coinbase has recently undertaken cost-cutting measures, including layoffs and other expense reductions, which have helped improve the company's overall cost structure and aided in achieving profitability.

Regulatory and Market Risks Impacting Coinbase Coinbase is embroiled in legal battles with the SEC, which has accused the company of offering unregistered securities. This creates significant regulatory uncertainty that could limit