Summary Coinbase faces near-term volatility as Bitcoin corrects, but its valuation is now more balanced after a sharp stock decline. COIN is expanding recurring revenue through stablecoins and subscriptions while maintaining strong adjusted EBITDA margins around 45%. Trading revenue remains volatile and dependent on altcoins and retail activity, with competition and interest rate risk still present. I upgrade COIN to neutral, seeing a floor at current prices and potential upside if shares dip below $200, reflecting a more attractive valuation. As we battle year-end volatility, one asset that has endured even sharper pessimism than stocks is Bitcoin. As of the time of writing, Bitcoin is down ~30% from peaks above $125k. A number of factors are behind the drop, but one of the principal arguments is that bears are fearing that Bitcoin prices have tended to peak in four-year cycles , and we're approaching the end of the current bull run. Bitcoin's sharp fall has taken down everything else in the crypto industry as well, including the second-largest exchange in the U.S., Coinbase ( COIN ). Shares of Coinbase are now down nearly 40% from July peaks near $420, and have erased all of its year-to-date gains. Data by YCharts I last wrote a sell article on Coinbase in September, when the stock was trading near $340 per share. At the time, I had argued that Coinbase was shouldering a very heavy valuation premium, especially amid potential trading volatility. Certainly, trading volatility has not ceased, but now ~20% lower, I do find that Coinbase's valuation is no longer trading at excessive highs, and amid a greater share of recurring revenue from stablecoins and subscriptions, I'm raising my rating on Coinbase to neutral. At current share prices, I see more of a balanced bull and bear thesis for Coinbase. On the bright side for the company: Coinbase is focused on expanding its recurring revenue. As a reminder, Coinbase does not try to guide or control transactional revenue, putting all of its focus on expanding its subscription revenue. Thanks to the rapid growth of USDC stablecoin circulation and the growing popularity of Coinbase One subscriptions (which is now anchored by a credit card that rewards 4% cash back in the form of BTC), the company is achieving substantial growth in recurring revenue. Substantial adjusted EBITDA margins. Coinbase is an immensely profitable business, despite the company's recent investments into headcount to roll out new products like advanced trading tools. The company recently produced a very healthy ~45% adjusted EBITDA margin. At the same time, however, we should be wary of the following factors: Trading volatility can make Coinbase's P&L very lumpy from quarter to quarter. Trading still represents roughly two-thirds of Coinbase's overall revenue. Nearly half of its trading revenue, meanwhile, comes from smaller altcoins, in which Coinbase recently expanded its selection (now assets tradable on Coinbase represent 90% of total crypto market cap). In volatile times, fewer people may trade, especially in altcoins. Interest rate risk. Falling interest rates will reduce net interest income on the company's stablecoin balances, though growing issuance and circulation of USDC helps to offset interest rate declines. Very crowded field. Crypto trading platforms have flooded the market aplenty. Coinbase is head-to-head versus the largest exchange, Binance, alongside other players including Kraken, Gemini, Robinhood ( HOOD ), eToro ( ETOR ), and Bullish ( BLSH ), which just launched its U.S. trading operations on October 31. From a valuation standpoint, Coinbase still sits at a premium, but not as stretched of a multiple as in the past. At current share prices near $265, Coinbase trades at a market cap of $71.97 billion. After we net off the $13.47 billion of cash and USDC and $2.60 billion of crypto held for long-term investment (which may have degraded in value since the September balance sheet close) against $7.20 billion of debt, the company's resulting enterprise value is $65.70 billion. For next year, FY26, Wall Street analysts are expecting Coinbase to hit $8.70 billion in revenue, or 16% y/y growth. If we conservatively assume 45% adjusted EBITDA margins on that revenue profile (flat to Q3 actuals and 3 points underneath 48% LTM margins), adjusted EBITDA on this revenue profile would be $3.91 billion, positioning Coinbase's valuation at ~17x EV/FY26 adjusted EBITDA. We note, as shown in the chart below, that Coinbase's valuation sits well below the likes of Robinhood ( HOOD ), which is trading more than twice as richly: Data by YCharts In my view, Coinbase is likely to still experience near-term volatility as BTC undergoes its correction. That said, I also think Coinbase's more reasonable valuation puts a floor on this stock. Continue to monitor this position from the sidelines for now, but Coinbase may prove to be a buy if it sails below $200 (indicating a low/mid-teens adjusted EBITDA multiple, and where Coinbase traded in the immediate aftermath of the tariff announcement in April). Q3 download Let's now go through Coinbase's latest quarterly results in greater detail. The Q3 revenue trends are shown in the chart below: Coinbase revenue trends (Coinbase Q3 shareholder letter) Coinbase's total revenue grew 55% y/y to $1.87 billion, which roundly beat Wall Street's expectations of $1.81 billion (+50% y/y) by a five-point margin. Heightened trading volatility was still the biggest driver of Coinbase's growth, with transactional revenue growing 83% y/y to $1.05 billion. But that's also a rapid change from a much weaker Q2, where transactional revenue declined -2% y/y. As a reminder, Q2 contained the post-tariff selloff across all risk assets. We do expect Q4 to be a similar repeat of Q2 weakness with the sell-off in Bitcoin. We note that many in the crypto community ascribe to a "HODL" ("hold on for dear life") mindset , which may reduce trading volumes as prices fall. The chart below showcases Coinbase's trading volumes. Total volume jumped 59% y/y to $295 billion. Interestingly, the large majority of Coinbase's volume (80%) is institutional, and yet spreads are razor-thin on institutional trading, which made up only 13% of transactional revenue in Q3 despite being the lion's share of volume. This is a strong reminder that Coinbase relies heavily on retail trading activity to drive revenue. Moreover, a growing share of this revenue is shifting toward altcoins, with "other crypto assets" growing to 42% of trading volume and 38% of transaction revenue, versus 24% for Bitcoin. Coinbase has expanded its selection of smaller tokens, and again, the proclivity to trade in these altcoins may be much weaker in a crypto bear market. Coinbase trading splits (Coinbase Q3 shareholder letter) On the subscription side, we do cheer the fact that non-transactional revenue saw strong 35% y/y growth to $746.7 million, or 41% of total revenue. This was driven by two factors. First, Coinbase has noted that attach rates are improving on Coinbase One, especially after the company rolled out its $5/month basic tier. This has proven to be especially popular for shoppers who want the 4% Bitcoin back credit card that Coinbase is offering, available to subscribers of all subscription tiers. Coinbase One (Coinbase Q3 shareholder letter) Coinbase also drove $355 million in revenue in Q3 from its net interest income on stablecoins, or roughly about half of the company's subscription and services revenue, with balances on USDC held in Coinbase growing 9% sequentially to $15 billion. On the profitability front, Coinbase's opex fell -9% sequentially to $1.39 billion, as transactional expenses of 14% of trading revenue fell on the lower end of the company's guidance (calling for a mid-teens percentage). Coinbase opex (Coinbase Q3 shareholder letter) Headcount continued to rise, adding ~500 net-new employees in the quarter. Sales and marketing costs, which is where USDC rewards (interest payments) are recorded, also rose ~10% sequentially. Still, in spite of this, Coinbase drove $801 million of adjusted EBITDA in Q3, up 78% y/y and reflecting a 45% adjusted EBITDA margin that improved 5 points y/y. Coinbase adjusted EBITDA (Coinbase Q3 shareholder letter) Key takeaways Investors should buckle in for more volatility in Coinbase as the stock swings and slides based on trading patterns in the crypto space. That said, I do think that Coinbase has fallen to a more reasonable valuation at a high-teens multiple of adjusted EBITDA. As long as the company is able to continue growing its recurring subscription/stablecoin revenue while growing its bottom line through profitable trading, the stock will remain on an upward long-term trajectory. Monitor this stock for the next major dip before buying.
