Better Crypto Stock: Coinbase Global vs. MicroStrategy

The price of Bitcoin (CRYPTO:BTC) has more than doubled in the last 12 months as the approval of the first spot price ETFs, halving of mining rewards and stabilization of interest rates brought the bulls back. The easiest way to profit from Bitcoin’s recovery was to buy the cryptocurrency or invest in one of the new ETFs.

However, Bitcoin’s rally has also lit a fire in stocks like Coinbase (NASDAQ: COIN), one of the world’s top cryptocurrency exchanges, and MicroStrategy (NASDAQ: MSTR), an aging enterprise software company that started accumulating Bitcoin in 2020. In months, Coinbase’s shares have increased by more than 280% and MicroStrategy’s shares have increased by over 270%. Now let’s see which of these hot crypto stocks is a better buy.

Image source: Getty Images.

Coinbase’s business is finally stabilizing

Coinbase generates most of its revenue from transaction fees, so its growth is tightly tied to the broader cryptocurrency market. In 2023, 34% of its transaction volume came from Bitcoin, 20% from Ether (CRYPTO: ETH) and 11% from stablecoins. The remaining 35% came from smaller altcoins and other crypto assets.

Coinbase’s revenue rose 514% in 2021 as stimulus checks, social media buzz and fear of missing out (FOMO) drew more investors into the cryptocurrency market. But the company’s revenue fell 59% in 2022 as rising rates burst the speculative bubble.

Its revenue falls another 3% in 2023 as the “crypto winter” cools its business. However, in the fourth quarter of 2023 and the first quarter of 2024, transaction volume and total revenue increased again, respectively. This stability has largely been due to the above-mentioned headwinds for Bitcoin and other cryptocurrencies.

Coinbase has also continued to grow as many of its largest rivals have been derailed by regulatory challenges, becoming the primary custodian of many of the market’s new Bitcoin spot-price ETFs. Analysts expect its revenue to rise 80% for the full year.

Coinbase’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin also turned positive again in 2023 as it aggressively cut costs. Analysts expect adjusted EBITDA margin to increase from 31% in 2023 to 49% in 2024 as the crypto winter ends. Based on these expectations, Coinbase’s shares still appear reasonably valued at 19 times this year’s adjusted EBITDA.

MicroStrategy still focuses on Bitcoin

MicroStrategy’s core software business sells data analytics software primarily to large enterprise customers. Over the past decade, it has faced intense competition from cloud-based analytics companies such as Salesforce, various cloud infrastructure platforms such as Amazon Web Services (AWS) and Microsoft Azure, and smaller business intelligence companies.

The story continues

MicroStrategy has gradually expanded its subscription-based services to offset declining licensing and support revenues. But that process was slow, and the company shifted gears with an unexpected purchase of $250 million worth of Bitcoin in August 2020. By the end of the first quarter of 2024, it had spent $7.54 billion to purchase 214,400 Bitcoins at an average cost of $35,180 per Bitcoin.

As of this writing, MicroStrategy’s Bitcoin holdings are currently worth $13.8 billion; that’s more than half of its $25.3 billion enterprise value.

Bulls believe MicroStrategy’s Bitcoin stacking strategy will turn it into a much larger company even if growth in its core business stalls. But analysts expect its revenue to fall about 1% this year as the company struggles to sell more software.

The company is also taking on more debt to finance Bitcoin purchases, and analysts expect it to become unprofitable again on a generally accepted accounting principles (GAAP) basis this year as more impairment costs arise from Bitcoin purchases. Analysts expect adjusted EBITDA to rise 8% this year, but its shares look expensive at 277 times that estimate.

Clear winner: Coinbase

While Coinbase remains the cornerstone and pioneer of the growing cryptocurrency market, MicroStrategy is a slow-growing software company investing in Bitcoin. Coinbase is also growing faster and trading at lower valuations than MicroStrategy. Both stocks could continue to rise as the crypto market recovers, but Coinbase is clearly a more promising long-term investment than MicroStrategy right now.

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John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Bitcoin, Coinbase Global, Ethereum, Microsoft and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Better Crypto Stock: Coinbase Global vs. MicroStrategy was first published by The Motley Fool