In the last few years, Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) have managed to onboard investors as well as traders at a rapid clip. Coinbase is one of the largest cryptocurrency exchange platforms in the world while Robinhood is a discount broker that has recently entered the crypto-trading space.
Here, we take a look at both the companies to see which stock is a better investment right now.
The bull case for Coinbase
Coinbase stock is down 10% from all-time highs after the company reported less than impressive Q3 results last week. In the quarter ended in September 2021, Coinbase reported sales of $1.3 billion, indicating a sequential decline of 41% while its net income stood at $406 million or $1.56 per share. Comparatively, Wall Street forecast Q3 sales at $1.6 billion for Coinbase.
The company’s monthly transacting users decline to 7.4 million in Q3, compared to 8.8 million in Q2 as trading volume slumped by 29% to $327 billion.
Several cryptocurrencies lost momentum in the first half of Q3 which impacted trading volumes resulting in lower sequential sales and profits.
But investors should note that Coinbase remains a top long-term bet given it has increased sales from $533 million in 2019 to $1.27 billion in 2020. Sales are forecast to touch $7.27 billion this year, indicating a year over year increase of more than 500%.
Coinbase also benefits from higher operating leverage as its operating income rose to $409 million in 2020 compared to a loss of $35.5 million in 2019. In the last 12-months, its operating income has surged to $2.38 billion, allowing the company to generate $300 million in cash flows in Q3.
Another massive revenue driver for Coinbase will be the launch of an NFT marketplace that will operate on the Ethereum blockchain. Coinbase confirmed that 2.5 million users have signed up for NFT updates and this could easily become a larger revenue driver for the company, compared to trading.
However, investing in Coinbase carries certain risks. The platform remains dependent on the two largest cryptocurrencies in Bitcoin and Ethereum that accounted for more than 40% of trading volume in Q3.
COIN stock is valued at a forward price to sales multiple of less than 12x and a price to earnings multiple of just 23.6x which is very reasonable.
The bear case for Robinhood
The COVID-19 pandemic acted as a significant tailwind for Robinhood that managed to attract several first-time traders on its platform. In Q3, Robinhood’s sales rose by 35% year over year to $365 million but it was well below Wall Street estimates of $431.5 million. Revenue was also below Q2 sales of $565 million, dragging HOOD stock lower in recent trading sessions. Robinhood shares are in fact trading near record lows and are down 57% from all-time highs.
Another worrying factor for Robinhood investors was the company’s net loss of $1.32 billion or $2.06 per share compared to a net loss of just $11 million in the year-ago period. Analysts estimated Robinhood’s Q3 losses at $0.69 per share. Further, it reported an adjusted EBITDA loss of $84 million compared to a profit of $59 million in the same period in 2020.
Robinhood has successfully disrupted the traditional brokerage market and has also expanded into the crypto trading space. In 2020, its revenue rose more than tripled to $959 million while its monthly active users rose to 11.7 million. It ended Q3 with a user base of 18.9 million but its revenue growth has decelerated significantly as its average revenue per user fell by 36% year over year to $65.
Right now, Robinhood is valued at a forward price to sales multiple of 14x and is still unprofitable even on an adjusted basis. Coinbase’s widening revenue base and stellar profit margins coupled with an attractive valuation makes it a better bet right now.
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