Coinbase stock jumps ahead of earnings, ratings upgrade by JPMorgan.
Trading on Coinbase (COIN) opened up 6% in the first hour of the day on February 15, driven by rising token prices and a recent rating upgrade by JPMorgan analysts.
After downgrading the crypto exchange stock in January, JPMorgan analyst Kenneth Worthington changed his tune and upgraded the stock rating from underweight to neutral, citing the positive impact of Bitcoin (BTC) exchange-traded funds (ETFs) on crypto markets. Worthington wrote to his clients on February 15:
“Given the increased flow into Bitcoin ETFs in recent days and the significant price appreciation of Bitcoin and now Ethereum, higher cryptocurrency prices are not only sustainable, but improving and activity levels and we are returning Coinbase's neutral rating on Coinbase. Looking ahead to 1Q24 Income power.
Bitcoin ETFs collected more than $10 billion in assets under management in their first month of trading, surpassing most analysts' predictions of strong demand for the crypto investment vehicle. Coinbase's hedge arm has partnered with many of the asset managers that launched Bitcoin ETFs in January. These products are expected to generate $25 million to $30 million in royalties for the company.
On the negative side, the exchange may not be profitable this year. According to analysis from InvestingPro, Coinbase has a negative operating income margin of -55.53%. This profitability ratio measures a company's profitability after paying for variable costs.
Analysts polled by Bloomberg forecast a loss of nearly $16 million in the final quarter of 2023. But some go against the grain. John Todaro of Needham & Company expects Coinbase to post net income of $103 million, which could push the exchange to profitability for the first time in two years.
Coinbase businesses are also challenged by regulatory and legal issues. The United States Securities and Exchange Commission sued the exchange in June 2023 for offering unregistered securities.
Still, investors seem to be eyeing the exchange's long-term prospects. The stock's one-year total return is up 131 percent. InvestingPro notes that COIN is currently trading at a “high price/book multiple,” meaning the stock may be overvalued relative to the company's actual assets.
JPMorgan's Worthington maintained his price target on the stock at $80, which is above the $170 trading price at the time of writing.
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