Coinbase Global Inc

Coinbase Global Inc (NASDAQ: COIN) is a provider of end-to-end financial infrastructure and technology for the crypto economy. It generates substantially all its net revenue from transaction fees from trades that occur on its platform. Geographically, it derives a vast majority of revenues from the US followed by the rest of the world.

Key highlights 

• Healthy guidance on financials: For the first quarter of 2021, the Company expects to have 56 million verified users with 6.1 million monthly Transacting Users (MTUs). The Company also expects to report total revenue of approximately USD 1,800 million along with a net income in a bracket of USD 730 - 800 million and Adjusted EBITDA to be in a range of USD 1,106 – 1,151 million.

Source: Company

• Guidance on Annual Average MTUs: MTUs have a strong correlation with the company's sales income. For FY 2021, the company looks forward to an average MTU of 7 million on a higher note and 4 million on a lower note. On a median note, it expects its annual average MTUs to be around 5.5 million.

Financial overview on FY2020

Source: Company

• In FY 2020 the company increased its total revenue by 139% to USD 1,277 million, against USD 533.7 million in the previous corresponding period. The revenue increased primarily due to healthy trading volumes and increase in custodial fee revenue.
• The company posted operating income of USD 408.9 million, against a loss of USD 45.7 million in pcp. Higher revenues fueled the company’s operating income, although it witnessed higher operating expenses.
• Net income for the reported period stood at USD 322.3 million, against a loss of USD 30.3 million in pcp.
• The group reported an increase in its cash and cash equivalents to USD 1,061.8 million as on December 31, 2020 compared to USD 548.9 million in the previous corresponding period.

Risks associated with investment

The company generates all of its net revenue from transaction fees from trades that occur on its platform; hence, the significant risk of technological change arises. The cryptocurrencies are considered highly volatile, and any fall in these currencies might dampen the overall value of client’s assets, which may result in lower revenue for the group. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company expects meaningful growth in 2021 driven by transaction and custody revenue, given the increased institutional interest in the crypto asset class. However, its institutional revenue is inherently unpredictable. Moreover, to scale its operations and to continue to drive product innovation, the company expects its technology and development expenses and general and administrative expenses to be in a range of USD1.3-1.6 billion for FY2021. Furthermore, the company got recently listed, and we are not sure of its operations and margins as it has a limited historical financial number. We have valued the stock using EV to Sales based valuation metrics and arrived at a target price offering a lower double-digit downside potential (in % terms). Therefore, we recommend an “Avoid” rating on the stock at the closing price of USD 342.0 as of April 16, 2021. We have considered Intercontinental Exchange Inc, Nasdaq Inc and CME Group Inc etc., as a peer group for the comparison purpose.

1 Year Daily Price Chart (As on April 16, 2021) Source: Refinitiv (Thomson Reuters)

Gilat Satellite Networks Ltd.

Gilat Satellite Networks Ltd. (NASDAQ: GILT) is a leading global provider of satellite-based broadband communications. The company designs and manufactures cutting-edge ground segment equipment and offers comprehensive solutions and end-to-end services powered by its innovative technology.

Key Updates:

• Expansion in Renewable Segment: Recently, the company announced that it would supply enterprise connectivity to Telespazio, a joint venture between Leonardo (67%) and Thales (33%). The company would provide a satellite network and thousands of VSATs to the energy plants of Telespazio. The above collaboration is in line with the company’s strategy of increasing its presence across the energy market. We believe the company is highly poised to utilize the upcoming opportunities from the renewable sector.

• New Order wins: On April 19, 2021, GLIT received orders of over USD 20 million from Low Earth Orbit (LEO) constellations. Gilat’s subsidiary, Wavestream, was selected as the vendor to supply Gateway Solid State Power Amplifiers (SSPAs) to LEO constellation. The orders were received as part of the previously announced contract. On March 22, 2021, the company announced an order win from SES, a leading player in global content connectivity solutions. The group would provide Tier-1 4G/LTE broadband connectivity to a Mobile Network Operator (MNO) in Brazil, used for the children’s education across remote areas.

FY20 Financial Highlights:

• GILT announced its full-year result, wherein the company posted total revenues of USD 165.885 million, lower than USD 263.492 million in the previous year. The decline was primarily attributed to significantly lower income from the Products segment (USD 94.010 million v/s USD 185.721 million in FY19).
• Gross profit recorded lower at USD 41.215 million, from USD 95.877 million in the previous year. The decline was mainly due to lower income, partially offset by a lower cost of revenues (USD 124.670 million v/s USD 167.615 million in FY19).
• Operating income stood at USD 37.611 million, higher than USD 25.572 million in FY19. The quarter was marked by an income of USD 53.633 million from Merger, acquisition, and related litigation. Moreover, R&D expense, Selling and marketing expense and General and administrative stood lower than the previous year.
• Net income stood at USD 34.911 million, v/s USD 36.538 million in FY19.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company witnessed a major setback from its customers during the pandemic, as various clients postponed their capex planning to retain the liquidity levels. Continuation of the above trend would dampen the future order book.

Stock Recommendation:

GILT offers integrated solutions to mobility, cellular, residential broadband segments and has clients from Governments and defense segments also. Moreover, the group is marking its presence across the growing clean energy segment, which is a key positive. The company reported a steady cash flow and posted its cash from operations at USD 43.160 million in FY20, higher than USD 34.782 million in FY19. Notably, the company continued its dividend payout amidst the tepid economic scenario, which is note-worthy. The stock is offering dividend yield of ~7.5%, which is lucrative considering the prevailing interest rate environment. On the valuation front, the stock is available at an EV to Sales multiples of 2.8x on TTM basis, which is lower than the industry (Communications & Networking) average of 4.8x. Hence, considering the above rationale, we give a ‘Speculative Buy’ rating on the stock of GILT at the closing price of USD 9.89 on April 16, 2021.

One-Year Price Chart (as on April 16, 2021). Source: Refinitiv (Thomson Reuters)