The problems seem far from over for the cryptocurrency exchange platform Coinbase Global, Inc. (COIN). After the SEC announced insider trading charges on a former COIN employee, the company was subject to a probe on whether it allowed American users to trade unregistered securities.

COIN offers retailers the primary financial account in the crypto economy, a marketplace with a pool of liquidity for transacting in crypto assets for institutions, and technology and services that enable ecosystem partners to build crypto-based applications and securely accept crypto-asset payments.

On July 21, 2022, the SEC announced insider trading charges against COIN’s former employee Ishan Wahi, accusing him of leaking information to his brother Nikhil Wahi and friend Sameer Ramani that COIN would list at least 25 crypto assets for trading on its platform.

Just before COIN’s announcement, the former employee’s brother and a friend bought the tokens and sold them at a profit of $1.10 million right after the official listing. The trio is also facing wire fraud charges. The agency did not allege any wrongdoing on COIN’s part.

On July 21, 2022, the SEC claimed that nine of the 25 tokens allegedly traded in the insider trading scheme were securities. The company was later hit by an SEC probe on whether it let its users trade digital assets that were not registered as securities.

COIN’s Chief Legal Officer Paul Grewal said, “We are confident that our rigorous diligence process- a process the SEC has already reviewed – keeps securities off our platform, and we look forward to engaging with the SEC on the matter.”

COIN’s stock has declined 75.1% in price year-to-date and 73.5% over the past year to close the last trading session at $62.70.

Here’s what could influence COIN’s performance in the upcoming months:

Disappointing Financials

COIN’s total revenue declined 35.2% year-over-year to $1.16 billion for the first quarter ended March 31, 2022. The company’s operating loss came in at $554.46 million, compared to an operating income of $987.71 million.

Its net loss came in at $429.65 million, compared to a net income of $771.46 million in the year-ago period. Also, its loss per share came in at $1.98, compared to an EPS of $3.05 in the year-ago period. Furthermore, its adjusted EBITDA declined 98.2% year-over-year to $19.68 million.

Unfavorable Analyst Estimates

Analysts expect COIN’s EPS for fiscal 2022 and 2023 to remain negative. Its revenue for fiscal 2022 is expected to decline 50.3% year-over-year to $3.89 billion.

Mixed Valuation

In terms of trailing-12-month EV/EBITDA, COIN’s 3.92x is 59.9% lower than the 9.78x industry average. Likewise, its 4.03x trailing-12-month EV/EBIT is 68.8% lower than the 12.92x industry average.

However, the stock’s 3.08x forward EV/S is 10% higher than the 2.80x industry average. Also, its 2.95x forward P/B is 147.9% higher than the 1.19x industry average.

POWR Ratings Reflect Bleak Prospects

COIN has an overall D rating, equating to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. COIN has an F grade for Sentiment, in sync with unfavorable analyst estimates.

It has an F grade for Growth, consistent with its poor financials. Also, its mixed valuation justifies its C grade for Value.

COIN is ranked #130 out of 156 stocks in the F-rated Software - Application industry. Click here to access COIN’s Momentum, Stability, and Quality ratings.

Bottom Line

The SEC’s charges against a former COIN employee mark a rare insider trading case in the fast-emerging cryptocurrency market. Soon after, COIN was subject to further scrutiny from the SEC, as the agency accused the company of letting users trade tokens that were not registered as securities.

The company has been asking for clarification on how to classify cryptocurrency tokens. This may lead to a lot of volatility in the stock in the upcoming months.

In addition to these issues, given COIN’s disappointing financials and unfavorable analyst estimates, it could be wise to avoid the stock now.

How Does Coinbase Global, Inc. (COIN) Stack Up Against Its Peers?

COIN has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Software - Application stocks with an A (Strong Buy) or B (Buy) rating, such as Rimini Street, Inc. (RMNI), Commvault Systems, Inc. (CVLT), and Open Text Corporation (OTEX).

COIN shares were trading at $63.90 per share on Tuesday morning, up $1.20 (+1.91%). Year-to-date, COIN has declined -74.68%, versus a -13.30% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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