Coinbase Global Inc.’s marketplace for nonfungible tokens is finally here in what could be key to reviving the crypto exchange’s growth prospects a year after its fizzling public debut.
A trial version of its long-awaited platform —designed to sell ownership of digital art and possibly other items—was unveiled Wednesday in the company’s latest attempt to diversify its revenue and bring more predictability to the business.
Coinbase was publicized one year ago. Investors were optimistic about a future of growth. However, with expected sales growth of triple digits by 2021 and negative in 2019, shares fell to an all-time low.
The social NFT marketplace—which will allow users to trade, “like” and comment on images, similar to Instagram—will be entering a crowded field six months after it was originally announced. Similar marketplaces have been launched by a number of crypto platforms and exchanges, including Binance and FTX. NFT is becoming less popular. Sales on OpenSea, the world’s biggest NFT marketplace, are down 67% over the past 30 days, per tracker DappRadar.
Coinbase will need the platform to be a hit as it seeks to reduce its reliance on trading fees, which are subject to the whims of retail traders who more recently have been on the sidelines after crypto prices fell from last year’s highs. At the end of last year, about 86% of Coinbase’s revenue came from trading fees. There are approximately 89,000,000 registered users, to which it can promote the service.
Many believe Coinbase will be able to expand into NFTs—but perhaps not as quickly as they expected last fall. The platform may be “too little, too late,” according to Dan Dolev, managing director at Mizuho Securities. “I don’t think this is the big, promising thing,” he said.
An One-Year Celebration
Since Coinbase’s debut nearly exactly one year ago, sentiment towards Coinbase stock is very different. The company was America’s largest crypto exchange. Its net revenue increased by over 500% from 2021. But it’s been a bumpy ride since then as Coinbase’s challenges have piled up.
Not only are there increasing competitors from crypto exchanges but also online brokerages such as Robinhood. Its grand India expansion plan—touted by Chief Executive Officer Brian Armstrong in a recent trip to Bengaluru —was blemished by an obstacle in payment. According to Bloomberg data, analysts are now predicting a decline in adjusted revenues this year.
Since the beginning of trading on Wednesday, it has lost about half of its value. Investors would be better advised to buy spot Bitcoin, even though prices have risen in line with them. On Wednesday, shares fell by 3.6%.
“Equity analysts just don’t believe Coinbase will be able to generate any revenues outside of trading in any meaningful way,” Jeff Dorman, chief investment officer at Arca, said in an interview. They are incorrect, he believes. “It obviously makes no sense where it’s being valued right now. Fundamentally, it’s just the cheapest stock in the world.”
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The NFT market still has grown hugely over the past year, and many believe that everything—from house deeds to club memberships—will become an NFT, creating a massive market. But the expectations for Coinbase’s new NFT business have been tempered since it was first announced.
“I don’t think the waitlist is going to be as excited about NFTs as they were six months ago,” Chris Brendler, an analyst at D.A. In an interview with Davidson. Coinbase holds 2.5 million email addresses, but some may be duplicates.
Looking ahead
Coinbase has been investing heavily, regardless of the obstacles. Coinbase has previously tried to diversify its revenue through the so-called “staking” products. These allow customers to make a profit on their coins. But in a recent investor letter, the company said it may slow its investments if there’s a material decline in sales so that losses won’t exceed $500 million this year. With nearly 150 transactions last year, its venture arm has been one of the largest in the sector.
“We’re not always going to be the first to market with a product,” said Alesia Haas, chief financial officer, during its earnings call in February. “But once we see customer demand, we’re going to fast follow and make sure that we can leverage the strength of our platform.”
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