Coinbase is losing investors over it’s expensive price — here’s why

Autonomous Analyst Christian Bolu joins Yahoo Finance Live to discuss how Coinbase is faring amid the pandemic and what we can expect from the company in the near future.

Video Transcript

- All right the battle to manage next-gen money is heating up with the likes of Coinbase and Robinhood duking it out for pole position. And this is where we find the Yahoo Finance call of the day. Autonomous Research is out initiating coverage of Coinbase with an underperform and Robinhood at outperform.

Christian Bolu is the analyst who made these calls, and he joins us now. Christian, good to see you this morning here. Wow on your call on Coinbase. A couple of things here. First up, why do you think they are losing market share?

CHRISTIAN BOLU: So I think you need to understand the--

- Oh, go ahead. Sorry, I thought you were on mute. You're good.

CHRISTIAN BOLU: Sorry. So again, thanks for having me on. I think you have to understand the context of what's happening here. There is really a major structural battle for next-generation money, and you are seeing a plethora of money apps coming into the market to try and battle for that share. What you've seen over the last, I would say, 18 months through the pandemic is really massive acceleration of that trend, huge amount of user growth that has come through to pretty much everyone Coinbase, Robinhood, and some of the other sort of payment-type apps.

I think going forward from here what's really critical is monetization, and from that perspective, who's most able to monetize their clients is probably who wins the battle going forward. The issue with Coinbase essentially is just pricing. I mean, it's just an expensive place to trade crypto, and you can do that in lots of places, right?

Robinhood is essentially zero-commission, though they make some money out of crypto. But Coinbase is almost 140 basis points, 1.4%, it's a really expensive place. And customers have choice, they can go to lots of places, and we think that's a key reason why they're basically losing market share.

- Christian, what caught my attention here, and it should catch the attention of the Coinbase bulls out there because there are many, you talk about this lack of them not innovating in a lot of different areas. Talk to us about that.

CHRISTIAN BOLU: I think that's even more worrying to me, and I think it's a critical point. Thanks for raising it. So remember the context of Coinbase, essentially they were on-ramp for most people into crypto. With the Bitcoin product very early on, they recognized the need for a really easy interface to on-ramp into crypto. They've done a fabulous job there.

Since then, quite frankly, on a lot of the innovations that have come through, they've basically lagged. So you know, in 2017 when you had an explosion of alternative coins from Ethereum to all sorts of other coins, they were really, really slow to come out the gates there. Debatable why that was, you know, regulatory uncertainty or just technology issues, debatable why that was. But you saw the likes of Binance in Asia, some Asian competitors come through because Coinbase didn't have the product.

Most recently, NFTs. You know, this has been sort of like the second awakening if you like of crypto, really brought crypto into a lot of people that-- a lot of ordinary folks that they get art maybe didn't get the financial parts of crypto, big movement. Coinbase has lagged also here in terms of it having an NFT marketplace. Now, they just announced yesterday that they will be launching one. But you've had folks like OpenSea who've been around for quite a while.

And I think the point that it's critical is, you know, it's not really about the particular product, but I think it's about a company mindset. Crypto is incredibly innovative. In the next five years, industry will look completely different to what it looks today. And if you are not on the bleeding edge of innovation, we think you might struggle as a company to really remain relevant. So I think it's a-- thanks for raising the point, but I it's a really important part of our underperfrom thesis.

- Christian, just to put a fine point at this, what made me smile perhaps-- although it's a grim one-- is that you compare Coinbase to Netscape. So you're not just saying that it's going to sort of fall behind here, you're saying like this thing's going to fall way behind. How long do you think that's going to take for this process to unfold where it just becomes really an also ran in this market?

CHRISTIAN BOLU: Yeah. Look, we don't know for sure. What some of the [INAUDIBLE] the demise of Coinbase in that sort of way they could say highly profitable company in a massive and growing addressable market. So in some ways, they could just benefit from basically, you know, the market just getting bigger. The Point we make about Netscape is, you know, competition matters. I think if you go through our notes we will draw a lot of parallels between the early internet era to the early crypto era, right?

There's so many parallels, transformative technology, lots of new companies coming through, lots of derivative companies coming through on the technology. And so there's lots of parallels, and we just make the point that Netscape essentially is how a lot of people for us went onto the internet. They figured out that you had a very simple GUI to log onto the internet and become active there. Coinbase figured out the same thing, but it wasn't a guarantee of success.

And I think that's the point, particularly around innovation that worries us about Coinbase here. So that's kind of the analogy we're drawing. But we're not really saying that they're going out of business anytime soon. This is again, a very profitable company. You know, the issue here market share and marginal growth.

- Christian, I have 25 seconds now left in this segment here. What is one reason why you're so bullish on Robinhood?

CHRISTIAN BOLU: It's the opposite. It's really monetization. I think there's lots of criticisms about Robinhood that are absolutely fair, but I think the one thing you can say about them is they, you know, they are the edge, right? Whenever it is an opportunity, they strike. Crypto, they were behind on crypto, realized it was going to be a big part for the customers, it went all in. And it's made them have a pretty meaningful market share over a very short period of time. They're building their wallet et cetera.

But I think the simple way to think about it is, you know, today, Robinhood's RPA, so revenue per account, is about $100. That number is more like $1,000 at Coinbase. Our basic thesis is that gap closes so I really would want to be with the guy with a hundred and moving up rather than being with the guy with 1,000 moving down.

- That would make sense if indeed that happens. Christian Bolu, Autonomous, thank you so much, appreciate it. Hope to catch up with you again soon after that dramatic call.