Coinbase's Untapped Valuation: Subscription Growth and Blockchain Ambitions Drive Re-Rating Potential

Coinbase (COIN) stands at a critical inflection point as the crypto industry transitions from speculative frenzy to institutional adoption. Despite short-term headwinds—including a 19% drop in transaction revenue and macroeconomic volatility—the company's diversified crypto services ecosystem, anchored by its subscription growth and Base blockchain expansion, suggests its valuation is materially undervalued. Analysts like William Blair see a 70% upside, citing underappreciated catalysts such as its $698 million in Q1 2025 subscription revenue (up 9% QoQ) and its role as a leader in the $60 billion USDC stablecoin market. Here's why Coinbase could re-rate to high-20x EBITDA multiples—and why investors should pay attention.

The Subscription Boom: A Stable Revenue Engine

Coinbase's subscription and services revenue rose 9% QoQ to $698 million in Q1 2025, a standout performance amid mixed results. This growth is fueled by two pillars:
1. USDC's Dominance: The stablecoin's market cap hit an all-time high of $60 billion, with average balances on Coinbase rising 49% QoQ to $12 billion. USDC's adoption as a settlement layer for decentralized apps (dApps) and institutional payments creates recurring revenue streams.
2. Coinbase One Enhancements: The company's premium subscription service now offers free gas fees on Base, boosted staking rewards, and exclusive tax filing partnerships. These perks have driven adoption, with over $160 million in loans facilitated via its new borrowing feature since launch.

However, historical performance data reveals that such growth has not always translated to stock gains. A backtest analysis of instances where subscription revenue growth exceeded 8% showed an average return of -17.25% over the subsequent 60 days, with a maximum drawdown of -85.75%, underscoring the challenges of market timing and the need for a long-term perspective.

The 9% QoQ growth underscores a shift toward recurring revenue, reducing reliance on volatile trading volumes. While Q2 2025 guidance hints at a potential dip due to falling Ethereum prices, the long-term trajectory remains positive. Subscription revenue's resilience—supported by Base's developer ecosystem—could position it as a key earnings driver for years to come.

Base Blockchain: The $2.9 Billion Bet on Developer Adoption

Coinbase's acquisition of Deribit for $2.9 billion (including $700 million in cash) marks a bold move to dominate crypto derivatives—a market with $2.3 trillion in open interest. But its true strategic value lies in Base, its Ethereum-compatible blockchain.

• Developer Onboarding Goals: Coinbase aims to onboard 1,000 developers by year-end, up from 500 today. Base's gas-free architecture and partnerships with builders like Morpho (which powered $160 million in loans) are luring dApp developers seeking cost efficiency.
• Enterprise Use Cases: Base's potential in payments, gaming, and decentralized finance (DeFi) could generate fee-based revenue. For instance, USDC transactions on Base cost 0.000000000001 USD—a fraction of Ethereum's fees—making it attractive for high-volume users.

Valuation: Why 16.7x EBITDA Is Too Cheap

Coinbase trades at a 16.7x 2026 EBITDA multiple, far below fintech peers like PayPal (25x) and Square (30x). This discount ignores its structural advantages:
1. Regulatory Wins: The SEC's dismissal of a lawsuit over unregistered securities—a $2 billion legal overhang—is now resolved. Clearer crypto regulations in the U.S. and India (where Coinbase secured a license) reduce tail risks.
2. Earnings Resilience: Even with Q1's trading volume declines (17% consumer, 9% institutional), adjusted EBITDA hit $930 million, up 27% YoY.

Analysts like William Blair argue Coinbase deserves a 25–30x EBITDA multiple, implying a $340–$420 price target—a 70% upside from current levels. The average analyst target of $269.96 (5.9% upside) seems conservative, given Base's growth and USDC's network effects.

Risks to Consider

• Regulatory Backlash: Despite progress, crypto remains a political lightning rod. New rules on stablecoins or derivatives could disrupt growth.
• Market Volatility: Bitcoin's price drop to $30,000 in late 2024 cut trading volumes and blockchain rewards. A prolonged bear market could delay re-rating.
• Competitor Pressure: Rival exchanges like Binance (now regulated in the U.S.) and FTX's comeback (if successful) could intensify pricing wars.
• Historical Strategy Performance: A backtest of buying COIN when subscription revenue growth exceeds 8% QoQ and holding for 得罪 days from 2020 to 2025 resulted in an average -17.25% return, highlighting execution risks and the need for a longer-term investment horizon.

Investment Thesis: Buy the Dip, Hold for the Long Game

Coinbase's valuation is a paradox: its $2 billion revenue and $930 million EBITDA suggest a company transitioning to profitability, yet its stock trades at a discount to pre-crypto-winter levels. With subscription revenue on a 9% growth trajectory, USDC's $60 billion market cap, and Base's developer ecosystem, the company is building a moat that few peers can match.

The 70% upside thesis hinges on investors recognizing that Coinbase isn't just a trading platform—it's a crypto services powerhouse. Even a modest re-rating to 20x EBITDA would push shares to $300+, while 25x multiples could validate the $400 price target.

Actionable Advice:
- Buy on dips below $240 (10% below current price) as a risk/reward entry.
- Hold for 12–18 months to capture EBITDA expansion from Base adoption and USDC's growth.
- Avoid if crypto adoption stalls, but the long-term shift toward decentralized finance is irreversible.

In a sector where volatility is the norm, Coinbase's diversified model offers a rare path to consistent growth. The question isn't whether the market will re-rate—it's when.

Final Note: Always consider your risk tolerance and consult a financial advisor before making investment decisions.