Summary Coinbase has surged ~30% YTD, benefiting from the crypto boom, but faces valuation and profitability concerns amid slowing revenue growth. COIN trades at a premium, with a >20x adjusted EBITDA multiple, despite choppy revenues, rising costs, and declining margins, prompting a reiterated sell rating. Q2 results were disappointing, with revenue up just 3% y/y and transactional revenue declining as crypto trading volatility and consumer activity waned. The company expects substantial deceleration in Q3. COIN's reliance on altcoins, heavy spending to compete, and competitive threats from platforms like eToro and Robinhood increase fundamental risks. The large part of 2025's stock market gains has been driven by a select handful of stocks and overarching themes. Alongside the AI boom, one of the other major broad market catalysts is the continued ascendance of cryptocurrencies, as Bitcoin briefly topped $120k and stablecoins continued to encourage first-time adoption. Coinbase ( COIN ) has benefited substantially from this trend, and the third-largest crypto exchange has seen its share price shoot up ~30% this year (and it's up more than 2x over the past one-year timeframe). The question for investors now is, as crypto trading potentially recedes ahead of a risk-off moment in the markets, can Coinbase continue to rally? Data by YCharts I last wrote a sell opinion on Coinbase in June, when the stock was still trading just under $300 per share. Since then, Coinbase has continued to muscle up ~15% higher, while trading volatility has significantly softened, which has thinned out the company's adjusted EBITDA base. On top of this, the company's more stable services/subscription revenue is also waning, owing to declines in the company's blockchain rewards commissions. Amid ever-rising headcount, I find it increasingly unlikely that Coinbase will be able to justify its valuation. I'm reiterating my sell rating on this stock. Since valuation is one of my biggest gripes with this stock, let's start with where the company's latest multiples are sitting. At current share prices near $340, Coinbase trades at a market cap of $87.99 billion. After we net off the $11.53 billion of cash and crypto held for investment on Coinbase's latest balance sheet against $4.51 billion of debt on Coinbase's most recent balance sheet, the company's resulting enterprise value is $80.97 billion. For next year FY26, Wall Street analysts are expecting Coinbase to generate $8.39 billion in revenue, or 14% y/y growth. If we apply a 43% adjusted EBITDA margin against this revenue profile (flat to the company's 1H'25 actual margins, which is already aggressive considering the recent downward trend in margins), adjusted EBITDA on this revenue profile would be $3.61 billion. This positions Coinbase's valuation multiples at: 9.7x EV/FY26 revenue 22.4x EV/FY26 EBITDA To me, paying a >20x adjusted EBITDA multiple for a business that has historically suffered from very choppy revenue trends, and is shouldering a substantial amount of additional headcount and cost and is experiencing adjusted EBITDA margin declines, signals that Coinbase is near the end of its valuation rope. Considering the recent downtrend in profitability, I'd be a buyer of Coinbase stock if it sailed down to the low/mid-teens, but before then I'm content to monitor this stock from the sidelines. There are other comps like eToro ( ETOR ), which is an Eurocentric cross between Robinhood ( HOOD ) and Coinbase, which trades at a much lower single-digit adjusted EBITDA multiple that I'd much rather buy. Coinbase's valuation risk is also joined by several operating and fundamental risks, which include: Altcoins may see weakness in the same way that small-cap stocks did. Coinbase relies on "other crypto assets" (which excludes Bitcoin, Ethereum, Solana and Ripple) for 55% of its trading volume and 41% of its revenue. In 2025, the stock market has been dominated by a crowding into large-cap tech stocks and a move away from small caps. The same could play out in the crypto markets, converging into the few largest coins (where Coinbase earns lower spreads on trading) and out of the smaller assets that drive volatility and large spreads. Spending war to keep up with sharp competition. Coinbase's adjusted EBITDA is falling, in large part due to heavy sales and marketing expense (a combination of both performance marketing to draw new customers, plus stablecoin rewards to encourage investors to keep their crypto in Coinbase). There is no shortage of popular crypto wallet services now, with Coinbase competing directly against the likes of Kraken, Gemini, Binance, Robinhood, and eToro. Steer clear here: in my view, Coinbase is ripe for a correction. Q2 download Let's now go through Coinbase's latest quarterly results in greater detail. The Q2 revenue trends shown below: Coinbase revenue trends (Coinbase Q2 shareholder letter) Coinbase's revenue grew at a sluggish 3% y/y pace to $1.50 billion in the quarter, actually widely missing Wall Street's expectations of $1.59 billion (+10% y/y) by a seven-point margin. Growth also slowed considerably relative to a 24% y/y jump in Q1. Various revenue streams contributed to the sharp deceleration. The company's total transactional revenue declined -2% y/y to $764 million, as consumer volatility weakened. This is the single biggest driver of revenue for Coinbase, responsible for nearly half of its revenue. The company blamed lower volatility as the principal driver; I also view the sharp rise in the stock markets as "competition" for Coinbase's casino. As small-caps and meme stocks like Newegg ( NEGG ) experienced wild volatility over the past few months, it's highly possible that many consumers have moved on from trading relatively less-volatile altcoins and into stocks, which are more liquid and have lower trading spreads. Per CFO Alesia Haas' remarks on the Q2 earnings call regarding market conditions: Crypto asset volatility declined 16%, despite the average crypto price market cap being roughly flat. We saw shifting macro conditions, including trade policy considerations and recession concerns, impact risk assets broadly. And crypto assets were no exception. We saw a divergence between Bitcoin and everything else as the average Bitcoin price in the quarter was up 6%, whereas non-Bitcoin asset market cap declined 11% [...] Our consumer spot trading volume was $43 billion, down 45%. And consumer trading revenue was $650 million, down 41%. In the quarter, we saw consumer spot volume shift towards simple as opposed to advanced given the lower volatility environment. Institutional spot trading volume was $194 billion, down 38%. Institutional transaction revenue was $61 million, also down 38%." The chart below, meanwhile, breaks down the company's trading volumes by asset. We note that Bitcoin has risen as a share of transaction revenue to 34%. To me, if Bitcoin prices stabilize and discourage active trading, we could see further top-line headwinds for Coinbase. Coinbase trading trends (Coinbase Q2 shareholder letter) Subscription and services revenue also slowed to just 10% y/y growth, from 17% growth in Q1. The company's growth in stablecoin rewards (as a reminder, Coinbase earns net interest income on the difference between the assets that Coinbase invests in short-term securities and the rewards it pays out to stablecoin holders) was partially offset by lower blockchain rewards, which declined -22% y/y to $144.5 million. The company blamed this decline on lower structural blockchain rewards as well as weaker prices for Ethereum and Solana. Coinbase's growth outlook is also poised to worsen. As shown in the chart below, the company is expecting transaction revenue to be just $360 million in Q3, which signals a -37% y/y decline. When stacking this on top of expected 27% y/y growth in subscription and services revenue to a midpoint of $705 million, total revenue of $1.065 billion would be down -6% y/y. This further serves to illustrate how much reliance Coinbase has on ever-changing crypto volatility and trading appetite. Coinbase Q3 outlook (Coinbase Q2 shareholder letter) Meanwhile, its fixed cost base continues to increase. As shown in the chart below, full-time employees jumped 22% y/y to 4,279 heads, an increase of more than 300 employees in the quarter. Coinbase opex (Coinbase Q2 shareholder letter) Coinbase's adjusted EBITDA fell -14% y/y to $512 million, with adjusted EBITDA margins of 36% falling seven points y/y. Coinbase adjusted EBITDA trends (Coinbase Q2 shareholder letter) Key takeaways In my view, Coinbase is sitting on a house of cards that is poised to crumble. Coinbase's high valuation multiples were at one point supported by soaring adjusted EBITDA and sturdy top-line revenue growth, but a recent cool-off in crypto volatility and non-Bitcoin asset prices have eaten into the company's growth engine. Amid the presence of cheaper alternatives like eToro, I don't think Coinbase remains at all an attractive stock to invest in. Steer clear here and invest elsewhere.co
