How to Invest in Coinbase Stock

Coinbase Global (COIN -5.13%) is a leading cryptocurrency platform. It started in 2012 to provide anyone anywhere with the ability to easily and securely send and receive Bitcoin (BTC -0.7%). Today, it allows anyone to invest, spend, save, earn, and use a variety of cryptocurrencies.

The company has developed several products and services to encourage more people to use cryptocurrencies. Its digital wallet, Coinbase Wallet, lets users store and manage all their crypto, non-fungible tokens (NFTs), and other wallets in one place. Meanwhile, its trading platform allows users to buy, sell, or HODL (hold) cryptocurrency. The company's smart contracts allow users to trade their crypto for fiat currency like the U.S. dollar (through USD Coin (USDC 0.01%), a stablecoin redeemable for U.S. dollars on a 1:1 basis).

Coinbase has a bold goal. It aims to build trusted and easy-to-use products and services to bring more than 1 billion people into crypto. The company wants to develop more uses for crypto beyond trading so that more people will use it for more things, expanding its ecosystem.

The potential of crypto might have you interested in investing in Coinbase. You might already be a user of its platform. Here's a step-by-step guide on how to buy the crypto stock and some factors to consider before adding the up-and-coming company to your portfolio.

How to buy

How to buy Coinbase stock

Investors interested in buying Coinbase stock have to take a few steps before becoming a shareholder. Here's a step-by-step guide to adding the cryptocurrency platform to your portfolio.

1. Open a brokerage account

You'll want to open and fund a brokerage account before buying shares of any company. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

2. Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money.

The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. You don't have to get there on the first day. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

3. Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term.

4. Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (COIN for Coinbase).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.

Once you complete the order page, click to submit your trade and become a Coinbase shareholder.

Should I invest?

Should I invest in Coinbase?

It's essential to thoroughly research a company before buying shares. You might uncover something about the company that changes your mind. On the other hand, the research process might firm up your conviction that the stock has the potential to be a high-return investment.

There are a lot of factors you should consider when researching a stock. Here are a few reasons why you might want to purchase Coinbase shares:

• You believe cryptocurrencies will play an increasingly important role in the future.
• You actively trade cryptocurrencies through Coinbase's exchange.
• You're convinced that Coinbase stock can outperform the S&P 500 over the next three to five years.
• You believe that Coinbase can start growing its revenue again and will eventually turn a profit.
• You're seeking a high-upside investment opportunity.
• You understand the risks, including the possibility that Coinbase stock will likely remain volatile and could continue losing money.
• You understand Coinbase's business model and how it makes money.
• You understand the difference between crypto and stocks.
• You believe that Coinbase will eventually grow into its lofty valuation.
• You like to invest in founder-led companies.
• Adding Coinbase would help you build a more diversified portfolio.
• You don't need dividend income from your investment.

On the other hand, here are some factors that might lead you to opt against buying shares:

• You're not exactly sure how Coinbase makes money.
• You don't hold any cryptocurrency and don't intend to get into the space.
• You're not convinced that cryptocurrencies will become mainstream investments.
• You don't think crypto has many uses other than trading.
• You're unsure whether Coinbase will ever turn the corner on profitability.
• Your portfolio is already heavily concentrated in cryptocurrencies and other crypto stocks.
• You're seeking investments with less volatility than Coinbase stock.
• You think Coinbase trades at a rich valuation for a money-losing company with declining revenue.
• You're at or nearing retirement and need investments that generate income.

Profitability

Is Coinbase profitable?

Digging into a company's profitability is an important aspect of an investor's research process because increasing profitability is typically the biggest factor driving a company's stock price over the long term. With that in mind, here's a closer look at Coinbase's profitability.

The cryptocurrency exchange had yet to turn the corner on profitability as of mid-2023. It posted a net loss of $97 million on $663 million of net revenue during the second quarter. While the company is still losing money, its losses have narrowed significantly over the past year:

The company has dramatically reduced losses by improving its financial discipline. Its spending on technology and development, as well as general and administrative costs, has decreased meaningfully, with the latter driven by a large decline in its headcount. The company has also reduced its transaction expenses from 21% of its revenue to 16%, while sales and marketing spending has fallen from 18% of revenue to 13%.

Coinbase needs to continue keeping a tight lid on expenses. It also will need to see its revenue start growing again. Those two factors would enable the company to start making money, which could drive its stock price higher over the long term.

Dividends

Does Coinbase pay a dividend?

Coinbase had not started making dividend payments to its shareholders as of mid-2023. The cryptocurrency exchange doesn't intend to begin paying dividends in the foreseeable future. It's not currently profitable and needs to retain its cash to fund its operations and continued expansion.

ETF options

ETFs with exposure to Coinbase

Investors don't have to directly invest in Coinbase stock to gain exposure to the cryptocurrency platform in their portfolio. An alternative strategy is to passively invest through a fund that holds its stock. One of the most common passive investment vehicles is an exchange-traded fund (ETF).

According to ETF.Com, 118 ETFs held 19 million shares of Coinbase as of mid-2023. The biggest holder was Cathie Wood's Ark Innovation ETF (ARKK -1.9%). The ETF held more than 7.4 million shares. It was the fund's fourth-largest holding at 7.3% of its total value, making it a solid way to gain exposure to Coinbase and other leading growth stocks.

Another Cathie Wood-managed ETF, Ark Next Generation Internet ETF (ARKW -1.38%), was a large holder of Coinbase stock. The fund held almost 1.5 million shares. It was the fund's second-largest holding at 8.3% of its value, making the ETF another meaningful way for investors to gain passive exposure to Coinbase.

Stock splits

Will Coinbase stock split?

Coinbase didn't have an upcoming stock split as of mid-2023. The cryptocurrency exchange had not completed a stock split since its direct listing on the Nasdaq Exchange in 2021. It likely won't split its stock anytime soon. Shares of Coinbase had lost almost three-quarters of their value from their direct listing price by mid-2023. The crypto platform would need to more than recover from the decline before splitting its stock.

Related investing topics

The bottom line on Coinbase

Coinbase is a leading cryptocurrency platform. That puts it in an excellent position to capitalize on the growth it sees ahead as more people use crypto for more things. Increasing crypto usage would help increase the company's revenue, potentially enabling it to finally turn the corner on profitability and helping drive significant stock price gains in the future.

However, it could continue to be a bumpy road for Coinbase. Cryptocurrencies have proven to be very volatile, which has affected its revenue. Investors need to ensure they understand the risks before investing in Coinbase stock.

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