The bear market has not been the sole preserve of stocks. It has extended to the crypto sphere and that has been bad news for a company which straddles both worlds – Coinbase (COIN). The leading crypto exchange has had a rough 2022, with the second quarter showing real-world decline on almost every metric. This has been reflected by the shares’ woeful performance – down by 73% on a year-to-date basis.
However, following conversations with CFO Alesia Haas and VP of IR Anil Gupta, Oppenheimer’s Owen Lau thinks Coinbase is far from down and out.
“We came away incrementally confident on Coinbase’s growth initiatives, secular trend of digital assets adoption and its ability to maintain leadership position,” said the analyst.
So, what is behind Lau’s positive stance?
For one, due to rising rates, the company has an opportunity by generating interest income from its USDC reserves. The company has a 50/50 JV with USDC issuer Circle in the Centre Consortium and the collateral backing USDC is invested in yield-generating assets. “As one-month and three-month Treasury rates have gone up substantially in 3QTD,” notes Lau, “we expect a meaningful increase in Coinbase’s 3Q22 interest income sequentially.”
There’s also the potential upside from staking. Running a node involves risks such as “slashing,” whereby nodes are punished for bad behavior (such as downtime and double signing). Coinbase, however, offers “slashing guarantee and absorbs the risks as node operator.” In return, Coinbase get 25% of the staking yield and the rest is passed on to retail customers.
There are also partnerships with such luminaries as BlackRock and Meta, for whom Coinbase is the backend crypto service provider. The company sees the collabs as shining a light on its “capabilities, controls and compliance.” Custody (such as crypto and NFTs), API feeds and Cloud all form part of the “monetization strategy” here.
Lastly, there’s the enticing valuation to consider. “Given the stock trading at only 4.1x (versus 8.8x comp) of 2023 consensus revenue, we see more upside than downside in the stock for long-term investors,” the analyst explained.
To this end, Lau has an Outperform (i.e., Buy) rating for the shares, backed by a $107 price target, making room for 12-month growth of 58%. (To watch Lau’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 8 Buys, 8 Holds and 2 Sells add up to a Moderate Buy consensus. In addition, the $97.63 average price target indicates ~44% upside potential from the current trading price of $67.64. (See Coinbase stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
