March 27, 2024
Coinbase Stock Soars Ahead of Earnings, Fueled by JPMorgan's Rating Upgrade
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Coinbase Stock Soars Ahead of Earnings, Fueled by JPMorgan’s Rating Upgrade

Coinbase, the prominent cryptocurrency exchange platform, experienced a notable surge in its stock value ahead of its earnings report, driven in part by a favorable rating upgrade from JPMorgan analysts. Trading commenced with a promising 6% increase on February 15 for Coinbase (COIN) shares, propelled by escalating token prices and JPMorgan’s recent shift in its rating stance.

JPMorgan analyst Kenneth Worthington, who previously downgraded Coinbase’s stock in January, reversed course and upgraded the rating from ‘underweight’ to ‘neutral’. He attributed this adjustment to the positive impact of Bitcoin exchange-traded funds (ETFs) on crypto markets. Worthington’s communication to clients on February 15 stated, “Given the acceleration in recent days of flows into Bitcoin ETFs and the significant price appreciation of Bitcoin and now Ethereum, we are returning to a Neutral rating on Coinbase…”

Bitcoin ETFs, amassing over $10 billion in assets under management within their inaugural trading month, exceeded analysts’ expectations, signaling robust demand for this cryptocurrency investment avenue. Coinbase’s custody arm has forged partnerships with a majority of asset managers launching Bitcoin ETFs, a strategic move anticipated to generate fees ranging between $25 million and $30 million for the company.

Despite these promising indicators, concerns persist regarding Coinbase’s profitability. An analysis by InvestingPro reveals a negative operating income margin of -55.53%, indicative of potentially challenging financial prospects. Bloomberg analysts predict losses of approximately $16 million for Coinbase in the last quarter of 2023. However, amidst these projections, Needham & Company’s John Todaro remains bullish, anticipating a net income of $103 million, potentially marking Coinbase’s return to profitability after a two-year hiatus.

Furthermore, legal entanglements with regulators pose another obstacle for Coinbase’s operations. The United States Securities and Exchange Commission’s lawsuit against the exchange in June 2023, alleging the offering of unregistered securities, underscores the regulatory complexities facing the company.

Nevertheless, investors seem to be focusing on Coinbase’s long-term trajectory, evident in the stock’s one-year price total return, which has surged by 131%. Nonetheless, caution is advised, as COIN currently trades at a “high Price/Book multiple,” suggesting a possible overvaluation compared to the company’s net assets.

JPMorgan’s Worthington has maintained a stock target price of $80, significantly exceeding the current trading price of $170, underscoring lingering investor optimism despite underlying challenge.

Image by Mohamed Hassan from Pixabay

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