Coinbase: Early Bottoming Signs Appear (Technical Analysis)

Summary Coinbase’s stock has erased its post-election gains, but early technical bottoming signs and strong fundamentals make it an attractive buy opportunity. Technical analysis shows bearish trends, but positive divergence in indicators suggests a bottom is near, with declining bearish momentum. Q4 earnings were strong, and Q1 is expected to be healthy despite some growth moderation, indicating robust financial performance. The P/S ratio has contracted significantly, making Coinbase undervalued relative to its growth prospects, justifying a buy rating. Intro The “Trump Bump” has vanished for Coinbase Global, Inc. (NASDAQ: COIN ) as the stock has erased its post-election gains but I believe now is an opportunity to buy into an attractive growth stock. In the below analysis, I determine that most technicals remain bearish. However, the positive divergence in the indicators suggest that a bottom is likely near for the stock. Furthermore, the Ichimoku Cloud signals that bearish momentum is now on the decline. For the fundamentals, most recent earnings were strong and while guidance projects some growth moderation, Q1 is expected to be another strong quarter. The P/S ratio has meanwhile contracted significantly from late 2024, making the stock undervalued versus its growth prospects. Therefore, I initiate Coinbase at a buy rating on the basis of early technical bottoming signs and an attractive fundamental proposition. Technical Analysis The Basics Seeking Alpha Trends, Support & Resistance A downtrend started for Coinbase back at the early December peak. Currently, the stock sits far beneath the trend line and so its resistance is not very relevant at this point. In this timeframe, there is only one key support level. It is at around 160 as this area was support back in early October and also seems to have held as support on the previous trading day. There are three nearby resistance levels, however. The nearest one is at around 180 and represents support back in late October and in early March. The next resistance level is at 200, a key round number. The stock found support there in mid October and resistance there in late March. Lastly, there could be resistance at 215 as that was a downside gap that occurred in early March. Note that the volume on that day had the second highest volume in the entire month. Seeking Alpha Moving Averages & Indicators The 50 day SMA and the 200 day SMA had a golden cross back in mid November as a long term bullish signal. However, the gap between the SMAs started to close in mid February and now a death cross seems imminent. The stock broke beneath the 200 day SMA’s support on a downside gap in late February as a major bearish indication. For the EMAs, the 9 day EMA broke below the 21 day EMA back in early February as a sign of near term weakness. The gap between the EMAs has expanded but is now holding quite steady showing that bearish momentum has been consistent but not accelerating. The Bollinger Bands midline clearly acted as resistance for Coinbase in late March. This shows that the downtrend in the stock remains strong. Even though market volatility has picked up significantly recently, the Bands are actually in a contraction phase with the stock now well above the lower band. For the MACD, while the stock has continued to decline, the indicator and its signal line has been flat for the past few weeks, showing that there is indecision. The MACD has also held above its mid March lows and so there is some positive divergence here. For the RSI, it currently has a reading of around 34 which indicates strong but not overwhelming bearish control as of now. Like the MACD, the RSI shows some positive divergence as it has held slightly above its early to mid March lows. Lastly, both stochastics lines seem to be at the same level currently. A bearish crossover may be occurring now and both the %K and %D have been below 50 since early February as another sign of sustained bearishness. Both lines are now at risk of falling back into the 20 zone as well. Like the other two indicators, the stochastics also displays bullish divergence as it made a higher low recently. Takeaway In the near term things are certainly still bearish for Coinbase in my view. The stock remains in a downtrend, the moving averages show significant weakening, and the indicators show bearish near term signals. However, the positive divergence in all three of these key indicators suggests to me that the bottom in the stock may be near as there is strength building beneath the surface. Therefore, I believe a longer term bullish reversal may be on the horizon. Fibonacci Seeking Alpha Time Zones Using the early December peak as the starting point, there has been significant price movement near the Fibonacci Time Zones recently. In mid February, at the 34th day mark, the stock started its major declines. In late March, at the 55th day mark, the minor rally ended and the bearish trend continued. Therefore, investors should be prepared for volatility near the 89th day in mid May. That doesn’t necessarily mean there won’t be major price movement before then but it’s something for investors to keep in mind moving forward. Seeking Alpha Projection Using the early December peak as a starting point and the late December low with the retracement to above 300, a Fibonacci projection is provided to identify potential support zones for the stock. Currently, the stock has broken beneath the 127.2% level and on the previous trading day, the 161.8% level seems to have acted as support. The 127.2% may have reversed polarity and become resistance like the 100% level in late March. However, with the 161.8% level relatively near the 150 round number, it could act as a floor for the stock moving forward. Ichimoku Cloud (Advanced) Seeking Alpha The stock is currently a far distance below the cloud which shows that the overall direction is bearish. Furthermore, the Leading Span A just crossed below the Leading Span B and so the cloud itself has become bearish to confirm the downtrend in the stock. The cloud is expanding into late April and so its resistance is likely to be significant if the stock were to rebound from current levels. As for the near term, the Conversion Line broke beneath the Base Line back in late February to show that momentum had shifted in the bears’ favour. The gap between these lines was the widest in mid March and has shrunken in recent days. This shows that near term bearish momentum has actually weakened. Lastly, the Lagging Span is currently below late February levels in the stock which confirms the bearishness. However, do note that its deviation with the stock price has decreased since late January and so that’s another sign that bearish momentum is now on the decline. Fundamental Analysis Earnings Data by YCharts Quarterly Results Coinbase reported their 2024 Q4 earnings back in mid February and showed strong results as a whole. The company posted total revenues of $2.27 billion, up significantly from the prior year period’s $953.8 million and net income of $1.29 billion, up from $273 million in the year ago quarter. Transaction revenue was most impressive as they saw a 194% YoY increase but Subscriptions and Services revenue was no slouch either as they saw growth of 71% in that segment. Both total revenue and adjusted EPS also surpassed consensus expectations easily with revenue beating by $435.3 million and EPS beating by $2.64. As shown in the chart above, revenue growth has hit multiyear highs and continues the strong uptrend in the figure. QoQ improvement was also impressive. For cash from operations, the company also recorded a multiyear high with its $964.62 million figure. This shows that the business is currently performing at a strong level. Guidance Coinbase did not provide guidance for their Transaction revenue but they were able to report that through February 11th (approximately halfway through their Q1), they had $750 million generated. In their 2024 Q1, they reported $1.08 billion in Transaction revenue and so they are on track for YoY growth. For their Subscription and Services revenue, they are expecting to see between $685 million to $765 million for their 2025 Q1. At the midpoint, this guidance would imply growth of 41.9% YoY since this figure was $510.9 million in 2024 Q1. This would represent a significant slowdown from Q4’s 71% growth rate for this figure. Nonetheless, overall I believe these guidance figures show that Coinbase’s business is expected to see another strong quarter with growth still being at healthy levels. Currently, Seeking Alpha rates Coinbase’s Revisions Grade as a B+ with 18 FY1 Up Revisions versus only 1 FY1 Down Revision in the past 90 days. Therefore, clearly the outlook for the business remains strong at this point. Valuation Data by YCharts Price To Sales Ratio [P/S] The P/S ratio is currently at 6.788 and is now at below average levels relative to the past few years. The multiple has experienced significant contraction from late 2024 levels of near 18 and is now at levels not seen since mid to late 2023. I believe this ratio shows undervaluation in Coinbase stock. As discussed above, revenue growth is currently at multiyear highs with their Q4 figure being 138.2%. In their Q1 guidance, they did not provide projections for total revenues but they do expect some moderation in growth for their Subscription and Services segment which could translate into an overall moderate revenue growth slowdown. Still, I would expect total revenue growth to remain at above average levels for their Q1 and so therefore there is a moderate disconnect with the P/S ratio being at below average levels currently. As of now, the Financials sector has a median P/S ratio of only 2.64 and so Coinbase is at a significant premium to “peers.” Do note that not many financial companies have such direct exposure to cryptocurrencies and so this comparison may not be too meaningful. The company’s leadership position in crypto exchange and impressive financial growth should help it to justify its valuation premium to the sector. Conclusion In the above analysis, most technicals were determined to be bearish but there are key signs that a bottom may be approaching. Positive divergence in the indicators and declining bearish momentum from the Ichimoku Clouds suggest a brightening outlook for the stock. As for the fundamentals, Q4 results were highly impressive and Q1 is expected to be another healthy quarter despite some moderation in growth projected. For the valuation, the P/S ratio has contracted significantly recently and seems to be disconnected with the financials of the company. Therefore, Coinbase seems attractively valued with growth expected to remain at above average levels. After analyzing the technicals and fundamentals, I conclude that Coinbase is now a buy with the risk/reward becoming attractive in my view.

Source: Seeking Alpha