With a revamped business model, Coinbase is proving why it's a leader in a burgeoning industry.
There are only seven companies worth more than $1 trillion today. These include some of the world's most prominent corporations, such as Apple, Microsoft, and Amazon. Reaching a $1 trillion valuation is no easy task and is reserved for a select few with just the right combination of characteristics.
By 2035, the $1 trillion club will likely look slightly different. Surely, some current members will slip, but new members will also join the club. One of those could be Coinbase Global (COIN 0.10%).
Image source: Getty Images.
Proven growth in a burgeoning industry
At the time of this writing, Coinbase's market cap is just shy of $40 billion. That means that if it were to join the $1 trillion club, it would need to grow by 2,400%. While undoubtedly that is an enormous amount, Coinbase could pull it off if it can maintain its current trajectory. Before dismissing this type of growth, let's look at Coinbase's past and how it provides a glimpse into its future.
Although Coinbase has only been on the stock market for a few years, the company's founding dates back to 2012. Originally designed to make buying and selling Bitcoin more accessible for users, Coinbase's business has evolved alongside the asset class.
Previously deriving the bulk of revenue from transaction fees, today, Coinbase boasts a diversified revenue model with innovative crypto products catering to retail and institutional investors.
As Coinbase's offerings have grown, so have its users. In the first quarter of 2018, there were around 23 million verified users on Coinbase's platform. Today, that number has reached nearly 120 million, a 400% increase.
Naturally, with more users, revenue has grown as well. In 2019, Coinbase generated around $533 million in revenue. Based on the most recent earnings report, total revenue for 2023 reached a whopping $3.1 billion, a nearly 500% increase in just four years and a compound annual growth rate of 168%.
Keep in mind that these metrics only capture the growth that has occurred over the last four or five years. If we were to measure from Coinbase's earliest days, the growth would be considerably larger, but this data is not easily accessible.
How it gets to $1 trillion
Coinbase checks just about every box a company should have to be considered a candidate for the $1 trillion club. Proven growth? Check. Resilient and innovative business model? Check. Position at the forefront of a burgeoning industry? Check.
But to show how it can join this elite club, the most practical approach is to compare it to an existing member -- Meta (META -0.19%).
Even though Meta (previously Facebook) derives most of its income from advertisers targeting audiences across its social media empire, there are striking similarities to Coinbase's crypto-centric business model.
At their core, both operate highly scalable digital platforms that don't necessitate significant costs. Digital platforms often have lower marginal costs per user as the user base grows. Once the platform is established, adding new users typically incurs minimal additional costs, contributing to scalable and efficient operations.
Furthermore, due to their digital nature, both benefit from network effects to grow revenue. An expanding user base enhances the overall value of platforms. More users attract more participants, creating a self-reinforcing cycle that can drive more growth.
Most importantly, though, similarities between business models are evident in each company's finances. Of the seven companies worth $1 trillion today, Meta boasts the highest profit margins at 80%. While annual revenue is second to last at $134.9 billion, its agile and light business model provides industry-leading margins no other company really comes close to.
COIN Gross Profit Margin (Quarterly) data by YCharts.
Here is where Coinbase's opportunity arises. Like Meta, Coinbase enjoys profit margins north of 80% due to its highly efficient business model. In fact, Coinbase's profit margins are better than those of all seven trillion-dollar companies today at 86%.
If Coinbase's revenue continues to grow at its current compound annual growth rate of 168%, it could see revenue reach $90 billion by 2035. It's not that far off from Meta's $117 billion in 2021 when it first crossed the $1 trillion mark. Assuming profit margins stay where they are today, Coinbase's future finances begin to look remarkably similar to Meta's.
Final considerations
The path to $1 trillion is far from a guarantee. However, Coinbase has a significant advantage shared by many of the current members of the $1 trillion club -- a leading position at the forefront of a paradigm shift. Similar to how social media altered our daily interactions, cryptocurrencies hold the power to transform businesses, economies, and our own financial lives.
The future growth of such disruptive technology is difficult to quantify and predict. However, we only need to look at its history to see its potential. In just 15 years, the total crypto asset class has grown in value from a few million dollars to a flourishing economy worth more than $1.5 trillion. By nearly every account, crypto has exceeded projections, and almost every past prediction underestimated its true potential. If Coinbase continues riding the waves of crypto's momentum, then reaching $1 trillion looks all the more possible.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. RJ Fulton has positions in Coinbase Global. The Motley Fool has positions in and recommends Amazon, Apple, Coinbase Global, Meta Platforms, and Microsoft. 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.
