Nasdaq Sell-Off: 1 Growth Stock Down 80% to Buy Now and Hold

With inflation at a 40-year high and interest rates on the rise, many investors have abandoned assets perceived as risky. Since peaking in November, the crypto market has lost half its value, and crypto exchange Coinbase Global (COIN 2.01%) has fallen even further. The stock is now down 80% from its all-time high.

While those losses hurt in the short term, the sell-off creates an opportunity for long-term investors who are bullish about the crypto-economy.

Here's what you should know.

A gateway to the crypto-economy

Coinbase breaks its business into two main revenue streams. First, the company earns transaction revenue from trading fees. Second, it earns subscription and services revenue, primarily from cold storage, staking, and infrastructure services. In the latter segment, Coinbase Cloud is particularly noteworthy, as it allows blockchain developers to integrate crypto trading and payments into their own applications.

In short, Coinbase is an onramp to the crypto-economy for retail traders and institutional investors, and that puts it in front of a tremendous market opportunity. The crypto market is currently worth $1.3 trillion -- that's a big number, but it's still a fraction of the $106 trillion global equities market and the $124 trillion global bond market. Coinbase should see trading volumes (and engagement with other services) rise substantially as cryptocurrencies become more mainstream.

A reputation for trust and simplicity

Coinbase is the largest U.S cryptocurrency exchange in terms of active users, and it owes that success to its first-mover status and its brand authority. In addition, the company has made significant investments in regulatory compliance and cybersecurity, and customers have never lost funds due to a security breach on its platform.

To that end, Coinbase has earned the trust of the crypto community, and its brand has become synonymous with simplicity and safety. As proof, Coinbase held a market-leading 11.5% of all crypto assets on its platform at the end of 2021.

Image source: Getty Images.

Bullish momentum beneath lackluster first-quarter results

The ongoing crypto crash was a headwind for Coinbase in the first quarter. Monthly transacting users (MTUs) dipped 19% to 9.2 million, and trading volume fell 44% to $309 billion over sequential quarters. In turn, revenue dropped 35% compared to the year-ago quarter, and the company posted a GAAP loss of $430 million, down from a profit of $388 million in Q1 2021.

However, several underlying trends bode well for the future. First, Bitcoin and Ethereum represented a combined 48% of transaction revenue, down from 60% in the prior year. That means investors are engaging with a wider variety of crypto assets.

Additionally, subscription and services revenue soared 169% to $152 million, meaning more retail and institutional traders are utilizing the platform for staking, cold storage, and infrastructure services. In fact, 54% of MTUs (5 million) engaged with a non-trading product during the quarter, up from 25% of MTUs (1.5 million) in the prior year. That trend makes the platform stickier.

More importantly, Coinbase has still delivered impressive financial results on a trailing-12-month basis.

Source: YCharts. TTM = Trailing 12 months. CAGR = Compound Annual Growth Rate.

A robust growth strategy

Looking to the future, Coinbase is working on a robust growth strategy. It recently launched a non-fungible token (NFT) marketplace, and CEO Brian Armstrong believes that the platform could be bigger than the crypto business in time. Most people associate the term NFT with cartoon JPEG images, but tokenized assets have far more potential. For instance, they could secure healthcare records, streamline digital identity, and simplify the sale of physical assets like cars and real estate.

Over the past year, Coinbase has also expanded its blockchain rewards business. Investors can now earn interest by staking Ethereum 2.0 and Cardano. It has also invested heavily in Coinbase Wallet, a self-custody crypto wallet that allows users to buy crypto and engage with decentralized finance (DeFi) services on Ethereum and Ethereum-compatible blockchains like Avalanche. More recently, Coinbase Wallet added support for Solana, one of the hottest blockchain projects around.

Here's the bottom line: Coinbase is already a key player in the growing crypto-economy, and the founder-led management team remains confident that it will be "a very profitable company" as the industry matures. With that in mind, the stock currently trades at 7.2 times earnings, meaning it's far cheaper than the broader S&P 500, which sports a price-to-earnings ratio of 24. That's why now is a great time to buy a few shares of this growth stock.