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Can Coinbase Keep Growing Its Revenue in 2022 and Beyond?

Coinbase (NASDAQ: COIN) recently made its public debut, and the company's soaring revenue shows just how much it has benefited from the surge in popularity of cryptocurrency trading. In this Fool Live video clip, recorded on Sept. 15, Fool.com contributor Jason Hall discusses Coinbase's future potential and risks with colleague Danny Vena and Senior Analyst Asit Sharma.

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Jason Hall: It's Coinbase. I mean, it's very, very different in terms of thinking about what type of investment Coinbase is versus Compass Pathways (NASDAQ: CMPS). The bottom line is that this is a company this is hugely profitable and hugely cash-flow positive right now. Because it's the biggest name in trading cryptocurrencies. So I think that's the key thing.

When it comes to crypto assets, you want to buy them and sell them and hold them. For your average person, the easiest way to do it is to have a platform like Coinbase, where you buy it and they hold it for you. You don't have to deal with having a storage device, keeping it physically in your possession, all of that thing. Coinbase has really established itself as the big pure-play in this space. I think it's a little bit misunderstood too, guys, because I see you see these headlines all the time when crypto prices fall, basically, insinuating that Coinbase is doomed.

Really, the thing that Coinbase needs to be successful is continued volatility because it makes its money based on transactions. It takes a piece from you when you sell your crypto and it takes a piece from the person that buys it on the other end. It gets paid twice on every single transaction on its platform. Revenue growth has been tremendous. Again, in a second, I'll show some charts here that I need to throw together in YCharts to show the profitability of the business. Now, with all of that said, still trades for a pretty extreme valuation. Particularly if you consider its biggest risks.

I think its biggest risk is not crypto losing, I mean, it is a risk. The crypto loses its interest. The people don't remain interested in crypto, but I don't think that's a significant risk. I think crypto is here to stay. The bigger risk, I think is competition. This is one of those things where sometimes you throw that out and it's like no competition is not a risk. It just means it's a great place to be in. But we just saw, guys, this week, Interactive Brokers (NASDAQ: IBKR) has announced that it's going to start facilitating some crypto on its platform. Interactive Brokers has a track record of crushing pricing, driving costs down, and that's the biggest threat to Coinbase right now.

It has pricing power right now because it's so big. But when you see more brokers and more financial service provider companies get involved in crypto, the massive profits that have made our at-risk. The question is going to grow scale quickly enough to offset the eventual erosion of its pricing. I'll leave it at that, guys. I'm sure one or two of you might have a question or thought here. Anybody? I didn't say everything about the company. I'm trying to save some stuff for you, guys. Come on.

Danny Vena: I think the biggest question I have really, as you say, is continued volatility. Is there any chance that if cryptocurrency ends up being something of a fad and doesn't attract the same amount of investors as it has recently, if that would hurt Coinbase over the long term?

Hall: It absolutely would. Again, because it makes money trading and so the fewer transactions that happened, that's bad for the business. Again, I think what's going to happen is we'll see more crypto assets proliferate. They'll be more types of assets that are developed over time that address some of the problems that crypto is said to be able to solve. But we haven't necessarily seen it in all of the use cases. As that happens, the transactional volume should move higher. If transaction volume doesn't move higher then, that's a problem for Coinbase.

Asit Sharma: Jason, quick question. I follow Coinbase. I've got a few crypto assets myself. I've seen that they have promoted a few DeFi assets and not to put you on the spot if this is not something you spend a lot of time in, but curious if you have thoughts on how important a big theme like DeFi might play in Coinbase's future as a counterpoint to decreasing pricing from those rights.

Asit Sharma has no position in any of the stocks mentioned. Danny Vena has no position in any of the stocks mentioned. Jason Hall has no position in any of the stocks mentioned. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends COMPASS Pathways plc. The Motley Fool recommends Interactive Brokers and recommends the following options: short September 2021 $70 puts on Interactive Brokers. The Motley Fool has a disclosure policy.


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