Better Bitcoin Stocks: Block vs Coinbase Global

Bitcoin‘s (crypto: BTC) The price, which is up almost 10% over the past month, appears to be holding steady above the $20,000 level as the selling pressure in the cryptocurrency market gradually eases. That stabilization has drawn some buyers back to the market’s beaten-down bitcoin-related stocks.

Both block (NYSE: SQUARE) And coinbase global (NASDAQ:COIN) There has been an increase of more than 10% in the last one month. Should investors buy either bitcoin as a turnaround bet on the market?

Golden coins labeled with the logo of bitcoin and stacked on a shiny circuit board.

Image Source: Getty Images.

Neither stock is a pure bitcoin game

Shares of Block and Coinbase often trade in tandem with the volatile prices of bitcoin, but neither company is a pure play on the cryptocurrency.

In its latest quarter, Block generated 44% of its revenue from bitcoin trades on its Cash app. It generated 36% of its revenue from transactions, subscriptions, services and hardware sales from its Square payments ecosystem, and another 18% from Cash App’s payments and other services.

Block, formerly known as Square, added bitcoin trades to the Cash app in early 2018. Nearly 10 million Cash App users have bought bitcoin since then, but it’s a double-edged sword: bitcoin brought significantly more revenue to Block, in particular. During the wild expansion of the cryptocurrency market throughout the pandemic, however, its bitcoin sales margins are far below the margins of Square’s seller-oriented services. Bitcoin’s volatility also offsets the relative stability of other platforms on the block.

Coinbase is one of the largest cryptocurrency exchanges in the world. In its latest quarter, it generated 41% of its total transaction revenue from bitcoin. Ethereum It accounted for 19% of its transaction revenue, while the rest came from other crypto assets.

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Coinbase’s business model is closely tied to the volatile crypto market, and bitcoin is ironically its most stable category of transactions – as ether and smaller cryptocurrencies are generally even more volatile.

Which company is growing the fastest?

Both Block and Coinbase experienced a boom in revenue growth last year as an increase in speculative retail trading and available funds from stimulus checks helped propel the prices of several cryptocurrencies, including bitcoin, to all-time highs. However, both the companies have faced severe slowdown this year as rising interest rates have turned investors away from riskier assets.

company

2020

2021

Q1 2022

block

48%

62%

(22%)

coinbase

139%

514%

(35%)

Year-over-year revenue growth. Data source: Company earnings report.

In 2020, Block’s rising bitcoin revenue offset the pandemic-induced slowdown in Square’s vendor-oriented services. As its bitcoin business cooled, its high-margin seller-oriented services recovered from a post-lockdown market and eased that shock. That’s why Block’s gross profit actually grew 34% year over year in the first quarter of 2022, even though its revenue declined 22%.

But over the next few quarters, macro headwinds — particularly inflation and a potential recession — will undermine the growth of Square’s seller ecosystem as the bitcoin price stabilizes. Its recent acquisition of Buy Now, Pay Later (BNPL) platform Afterpay, which is highly unprofitable, will further reduce the company’s margins. As a result, analysts expect this to be a net loss for the full year.

Coinbase’s growth has been driven solely by the buying frenzy in the crypto market over the past two years. Its average monthly transactional users (MTU) more than quadrupled to 11.4 million in 2021, but declined sequentially to 9.2 million in the first quarter of 2022.

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The company roughly (and without help) expects its MTUs to land somewhere between 5 million and 15 million for the full year, but it also recently laid off about a fifth of its workforce because the CEO Brian Armstrong told investors to be prepared for a new “crypto winter”. Coinbase turned profitable in 2020 and 2021, but is expected to bleed red ink again in 2022 as the crypto market cools down.

Estimation and Evaluation

Analysts expect Block’s revenue to remain roughly flat this year at $17.7 billion as it posts a net loss of $681 million compared to a net profit of $166 million in 2021. In 2023, he expects its revenue to grow 20% to $21.3 billion. Net loss of $216 million.

Coinbase’s future looks bleak. Analysts expect its revenue to fall 50% this year to $3.9 billion, up 32% to $5.2 billion in 2023. He expects a net loss of $2.3 billion this year and a net profit of $3.0 billion in 2021, and so forth. Losses reduced to $626 million in 2023. But I wouldn’t put too much faith in those long-term projections as they are tightly tied to the unpredictable cryptocurrency market.

Based on these expectations, Block and Coinbase trade at 2x and 3x this year’s sales, respectively. I’m not a fan of any stocks right now – and bitcoin miners may be better “pure plays” on the stable cryptocurrency – but Block is clearly a better pick than Coinbase.

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Leo Sun has no position in any of the stocks mentioned. Bitcoin, Block, Inc., Coinbase Global, Inc. at The Motley Fool. And Ethereum positions and recommends it. The Motley Fool has a disclosure policy.

The views and opinions expressed here are the views and opinions of the author and do not necessarily represent those of Nasdaq, Inc.

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