Shares of popular cryptocurrency exchange firm Coinbase (NASDAQ:COIN) are soaring today following a Q1 earnings beat. As the firm looks to move on from a disastrous year and a 90% peak-to-trough plunge, there are still huge risks and rewards that will likely dictate the trajectory of the stock from here.
At these depths, I’m staying neutral on the stock due to a wide range of uncertainties relating to the firm’s legal battle with the SEC regarding some of the exchange’s products. Undoubtedly, the stock has already been punished severely, but until there’s more clarity, I remain on the sidelines.
Indeed, it’s lonely to be a bull on Coinbase stock these days, with the average analyst pinning the stock as a “Hold.”
Coinbase Clocks in Decent First Quarter
Coinbase surprised to the upside, clocking in a narrower Q1 loss of $79 million (-$0.34/share), down from $430 million (-$1.98/share) posted last year. Cost-cutting efforts, including layoffs, helped the firm beat the mark. Though trading activity remained relatively quiet, it’s encouraging to see shrinking quarterly losses.
Whether or not the firm has more cuts to make remains to be seen. Regardless, the firm seems better positioned to ride out what could be a lengthy “crypto winter.”
With Bitcoin (BTC-USD) prices steadily appreciating in recent months, the so-called “crypto winter” may not be nearly as cold as expected. Further, spring may be on the way as investors look to reconsider crypto as a store of value following the U.S. regional banking woes.
Bank runs hitting the regionals have many worried a contagion could start. Any time depositors lose confidence in their banks, it’s cryptocurrencies that may rise to the occasion. In that regard, Coinbase may have upside if the current run in Bitcoin continues into the second half of 2023.
For now, Coinbase is showing that it can get costs under control amid less-than-ideal conditions. The company over-earned when crypto was hot. Now, it’s ready to batten down the hatches as it under-earns for some period of time.
Regulatory Issues Could Continue to Weigh on COIN
Even after a solid quarter, Coinbase’s legal matters remain at the top of mind. The company received a Wells notice from the SEC (Securities Exchange Commission) back in March, meaning that Coinbase can get sued, which brings forth a huge cloud of uncertainty.
Peter Christiansen of Citigroup (NYSE:C) recently issued a note that highlighted the “high level of uncertainty” regarding “regulatory rules of the road.” Mr. Christiansen downgraded the stock to “Hold” while cutting his price target by $15 to $65.
Undoubtedly, it’s tough to factor in how regulations and legal concerns factor into the valuation of the firm. Despite potential catalysts (crypto upside, future innovations, and the stock’s depressed multiple), Coinbase stock remains a high-risk/high-reward proposition.
Coinbase is Still One of the Better Ways to Play Blockchain Tech
Like with any commodity, it’s tough to tell where Bitcoin or any other crypto-tied firm is headed next. The unpredictable and extremely volatile nature of cryptocurrencies also makes Coinbase a tough stock to value accurately.
The company not only provides an easily-accessible (and now lower-cost) way to expose yourself to the crypto universe, but the firm also has a foot in the door of other blockchain-related markets.
NFTs (non-fungible tokens) carried a lot of hype just two years ago; these days, it’s all about AI (artificial intelligence). Still, as the Metaverse slowly matures, “NFT” may not be a term to eliminate from your vocabulary just yet. Though, you’ll probably hear much less of it from here on out.
Even as NFT prices, virtual real estate, and cryptocurrencies feel the pressure, Coinbase seems to provide broader exposure to areas of the crypto and blockchain market that may heat up at some point in the distant future.
The speculative bubbles have burst, but that’s probably well-factored into the share price after COIN stock’s painful 90% implosion. I like to think of Coinbase’s NFT marketplace and other innovations as being thrown in alongside the flagship crypto exchange.
Is COIN Stock a Buy, According to Analysts?
Turning to Wall Street, COIN stock comes in as a Hold. Out of 21 analyst ratings, there are seven Buys, eight Holds, and six Sells. The average Coinbase stock price target is $63.21, implying 9% upside potential. Analyst price targets range from a low of $27.00 per share to a high of $100.00 per share.
The Bottom Line on Coinbase after Earnings
Coinbase is doing a decent job of keeping expenses in check amid tougher times. Still, regulatory overhang remains the main reason to take a rain check on shares for now, in my opinion. After all, Coinbase was already a tough stock to value even before the new regulatory risk was unearthed.
ARK Invest’s Cathie Wood still believes in shares of the battered crypto platform, though, even after so many others have already thrown in the towel. She may be right, but I’ll be siding with the analyst majority for now until the air is cleared on the regulatory front.
