How Coinbase's Wild Earnings Stack Up Against Normie Financial Firms

Based on earnings estimates announced Tuesday, nothing else in the financial services industry really compares to Coinbase right now.

Wedded to the rising fortunes of cryptocurrencies themselves, soon-to-list Coinbase expects to make more money in the first quarter of this year than in all of 2020, and has seen an exponential rise in engaged customers.

Coinbase’s revenue for the first three months of 2021 is expected to be $1.8 billion with earnings of about $800 million, compared with $1.3 billion in revenue and earnings of $322 million for all of 2020. Crypto is booming right now, with bitcoin holding its own not far below $60,000.

Ahead of next week's listing of COIN stock, the obvious question is whether the current quarter is an outlier or, as some stolid crypto believers may be thinking, the new normal.

In this respect, seasoned crypto watchers will recall that Coinbase reported bumper revenue of close to $1 billion in 2017, and close to half of that was booked in December of that year when the price of bitcoin rose to then-all-time highs near $20,000.

Still, when Coinbase does list on April 14, Wall Street will have to sit up and take notice, and also begin comparing the stock to other listed brokerage and investment firms. 

It’s hard to predict how long the crypto industry’s current upswing will last, but it’s fun to compare large listed trading firms with Coinbase, especially because it has been an unusual year for everyone. 

In fact, 2020 was a huge year for the retail investing industry, thanks to the COVID-19 lockdown, the explosion of interest around WallStreetBets and also large plays like brokerage giant Charles Schwab’s acquisition of rival TD Ameritrade.

Schwab added 15.77 million new clients in the fourth quarter, which includes 14.5 million new brokerage accounts from the TD Ameritrade merger. The merged company now has about 29 million brokerage accounts and handled some $6.69 trillion in client assets at the end of 2020.

Coinbase saw its monthly active users jump from 2.8 million in the fourth quarter of 2020 to 6.1 million in the first quarter of 2021. The overall number of people with Coinbase accounts increased from 43 million last year to 56 million. Total assets on Coinbase's platform increased from $90 billion to $223 billion, nearly a 150% increase quarter over quarter.

Meanwhile, Robinhood, which added crypto as an asset class to its commission-free trading platform back in 2018, saw its transaction volume double in 2020 (boosted in no small part by WSB-type trading in GameStop and AMC Theatres), and its daily average revenue trades outperformed publicly traded, incumbent brokerage firms like Schwab.

Robinhood, which has over 13 million customers, also offers an interesting comparison with Coinbase in that the brokerage platform has announced its intention to list later this year. An increase in the price of Robinhood shares in secondary market trading could see the app reach a $40 billion valuation, about twice the figure predicted back in December.

When Coinbase debuts on Nasdaq later this month, it's expected to command a value of about $100 billion. Even based on a conservative value of $300 a share, Coinbase is now worth more than InterContinental Exchange (ICE) Group, the owner of the New York Stock Exchange (NYSE). ICE reported earnings of $2.1 billion in 2020.

The crypto space is understandably in a state of excitement. 

But this could also turn out costly. There’s a good chance Coinbase stock will be driven up in price by Wall Street investors who don’t fully understand crypto cyclicality, and who are probably not considering a possible 50% pullback in bitcoin's price down the line.