Coinbase

Better Bitcoin Stock: Block vs. Coinbase Global

Bitcoin‘with (CRYPTO: BTC) the price has risen about 10% over the past month, seemingly stabilizing above the $20,000 level, as selling pressure in the cryptocurrency market has gradually eased. That stabilization has brought some buyers back to Bitcoin-related stocks.

Both Block (NYSE: SQ) and Coinbase Global (NASDAQ: COIN) have risen more than 10% over the past month. Should investors buy any of these as a bet on a reversal in the Bitcoin market?

Gold coins marked with the Bitcoin logo and stacked on a shiny printed board.

Image source: Getty Images.

No stock is a pure Bitcoin play

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

In the last quarter, Block generated 44% of its revenue from Bitcoin trading 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 payments and other services of the Cash app.

Block, formerly known as Square, added Bitcoin trading to the Cash app back in early 2018. About 10 million Cash App users have bought Bitcoin since then, but it’s been a double-edged sword: Bitcoin has brought in significantly more revenue for Block, especially during its wild expansion cryptocurrency markets during the pandemic, but the margins on its Bitcoin sales are much lower than those of Square’s seller-focused services. Bitcoin’s volatility also offsets the relative stability of other Block platforms.

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

Coinbase’s business model is entirely tied to the volatile crypto market, and Bitcoin is ironically its most stable transaction category – since Ether and smaller cryptocurrencies tend to be even more volatile.

Which company is growing faster?

Both Block and Coinbase saw accelerated revenue growth last year as a surge in speculative retail trading and cash available through incentive checks helped push the prices of many cryptocurrencies, including Bitcoin, to all-time highs. However, both companies have faced a serious slowdown this year as rising interest rates drive investors away from riskier assets.

Society

in 2020

in 2021

First quarter of 2022

Block

48%

62%

(22%)

Coinbase

139%

514%

(35%)

Income growth from year to year. Data source: Company income reports.

In 2020, Block’s rising Bitcoin revenue offset a pandemic-induced slowdown in Square’s seller-focused services. As its bitcoin business cooled, its services aimed at higher-margin sellers rebounded in the after-hours market and cushioned the blow. Because of this, Block’s gross profit actually rose 34% year-over-year in the first quarter of 2022, even though its revenue fell 22%.

But over the next few quarters, macro headwinds — particularly inflation and a possible recession — are likely to stifle the growth of Square’s sales ecosystem while the price of Bitcoin stagnates. Its recent acquisition of buy-now-pay-later (BNPL) platform Afterpay, which is deeply unprofitable, will further reduce the company’s margins. As a result, analysts expect it to post a net loss for the full year.

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

The company generally (and unaided) expects its MTUs to be between 5 million and 15 million for the full year, but it also recently laid off nearly a fifth of its workforce as CEO Brian Armstrong told investors to prepare for another “crypto winter “. .” Coinbase turned profitable in 2020 and 2021, but is expected to bleed again in 2022 as the crypto market cools.

Assessments and evaluations

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

Coinbase’s future looks bleaker. Analysts expect revenue to fall 50% this year to $3.9 billion before rebounding 32% to $5.2 billion in 2023. They expect to post a net loss of $2.3 billion this year vs. to a net profit of $3.0 billion in 2021, for which the loss will shrink to $626 million in 2023. But I wouldn’t put too much faith in those long-term estimates because they are firmly tied to the unpredictable cryptocurrency market.

Based on these expectations, Block and Coinbase are trading at 2x and 3x this year’s sales. I’m not a fan of either stock right now — and Bitcoin miners might do better to “play it clean” on a stabilizing cryptocurrency — but Block is clearly a better choice than Coinbase right now.

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

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

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