Wall Street expects brutal Coinbase earnings. Why an analyst upgraded the stock.
Wall Street is largely muted ahead of Coinbase Global earnings
,
expect to see big losses and the lowest quarterly sales in two years from the cryptocurrency broker when the group reports earnings after midnight on Tuesday.
A generally downbeat tone from analysts — amid growing regulatory headwinds and few signs of an improvement in key trading business — is putting a remarkable recent rally by Coinbase (ticker: COIN ) stock in the spotlight. But even though shares are up more than 80% so far this year, at least one analyst sees room for more gains.
The eye-popping rally to start 2023 belies the poor stretch Coinbase has had, with the stock down about two-thirds from a year ago.
Not only was Coinbase stock dragged down by a tough year for the entire market in 2022 — amid skyrocketing interest rates, dampening demand for high-growth plays like those in tech and crypto — but losses were compounded by a crypto crash. Plunging prices for
Bitcoin
and other tokens, crucially, pushed away many of the retail investors who are at the core of Coinbase’s trading business and have yet to return in force.
Add to that the growing regulatory headwinds, and the picture hasn’t been so rosy lately. Regulators have increased scrutiny of digital assets since the collapse of rival exchange FTX in November, with federal agencies accelerating their crackdown on crypto companies, products and services in recent weeks.
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All of this — on the back of a rally in the stock — has analysts fairly cautious on Coinbase, which has an average rating of Hold among analysts surveyed by FactSet, with an average price target of about $62 below the stock’s Friday close of $65.20.
The consensus among analysts is that Coinbase will post a loss of $2.52 per share in the fourth quarter on revenue of $588 million — the lowest sales since the end of 2020. And the outlook for the company looks rocky in light of recent events.
“We see regulation through enforcement as a risk for digital-focused businesses,” Kenneth B. Worthington, analyst at JP Morgan
,
wrote in a memo late last week. “Coinbase has focused on building subscription services that are more stable and resilient to crypto market volatility, and we see that as higher value for equity investors. However, recent actions by the SEC put various parts at risk.”
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JP Morgan is particularly concerned about the Securities and Exchange Commission’s (SEC) attack on betting services at rival exchange Kraken. Staking is a process by which investors can earn returns on tokens such as Ether, and is a core pillar of Coinbase’s strategy to diversify revenue away from strictly crypto trading.
But not everyone agrees. Chase White, an analyst at Compass Point, actually upgraded Coinbase stock late last week to Buy with a $100 price target. White is bullish on Bitcoin and sees cryptos making gains so far this year as another bull market.
“We believe Coinbase is well positioned to gain market share, particularly among US retail investors, when the crypto bull market returns, which we expect to start in late 2H23 and continue through 2024,” White said.
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“While Coinbase currently faces regulatory uncertainty related to several aspects of its business…we believe most of the issues are unlikely to have a material adverse impact on operations when all is said and done,” White added. “We believe that Coinbase will not only make it through the crypto winter, but is positioned to thrive.”
That puts Compass Point at the more bullish end of Wall Street – and there are definitely some bears. Shorting, or betting against, crypto stocks has been a hot trade since the collapse of FTX, with Coinbase shorted by traders to a much greater extent than the average US stock. Heading into earnings on Tuesday, there will be a minority of investors taking the other side of the trade.
Write to Jack Denton at [email protected]
