Coinbase (COIN) was in the news this week, in a big way, and not in a good way. As CNBC reported, users of the cryptocurrency trading platform have complained for months about “a pattern of account takeovers, where users see money suddenly vanish from their account, followed by poor customer service from the company.”
Coinbase customers interviewed for the story relayed tales of opening accounts with the service only to find sums ranging from $12,000 to $35,000 to $168,000 suddenly drained from their accounts, in a matter of minutes, by parties unknown — only to be informed by Coinbase by email that the hacks were “[not] the fault of Coinbase,” and “as a result, Coinbase is unable to reimburse you for your alleged losses.” And anyway, says Coinbase, “less than .01%… of our customers have been impacted by account takeovers.”
Well, that’s a relief… except for the 0.01%.
Despite the bad press, Coinbase shares actually rose 1.3% in Tuesday trading, and for that, investors in the company can probably thank analyst John Todaro at Needham & Co. You see, right about the same time CNBC was publishing its report, Todaro released a report of his own in which he initiated coverage of Coinbase stock with a “buy” rating and a $420 price target suggesting there’s as much as 63% upside in Coinbase stock.
In addition to being a “market-leading crypto asset exchange” already, argues Todaro, with more than 68 million users spread across more than 100 countries, controlling $223 billion in assets, Coinbase has “significant future opportunities” to grow its business beyond mere exchange services, including by offering services in “staking, custody, yield bearing products, and more.”
As the analyst explains, Coinbase is already “a go-to crypto exchange” for both retail and institutional users, and “an easily accessible platform” for drawing users into the “crypto ecosystem.” This business alone is expected to grow revenues 467% in 2021, and then a more modest 9% in 2022. Further growth, however, will come from supporting users who want to “stake” crypto (i.e. actively participate in validation transactions and proving cryptocurrency stakes), and in particular Ethereum — a business that grew 271% sequentially in Q2.
The analyst also applauds the fact that Coinbase is “offering new assets and new products… maintaining uptime, offering deep liquidity pools” to facilitate crypto trading, “and ensuring exchange reliability.”
That’s a curious assertion, admittedly, in light of the CNBC story. But Todaro argues that there has not yet been a successful hack of Coinbase’s own exchange — in marked contrast to what you might assume from the user complaints of their accounts being hijacked).
Well and good, you say, but how profitable is Coinbase — profits being what ordinarily drive returns in a stock investment after all? And it’s interesting you should ask that because… as it turns out Coinbase, may actually be becoming less profitable, not more.
Between the fabulous rise in Bitcoin prices so far this year, and the deluge of revenues this has provided Coinbase, Todaro estimates that this year Coinbase will earn a hefty $13.15 per share. Next year, however, even with revenues rising modestly, the analyst forecasts a 24% decline in per share profits to just $10.04.
How long that trend continues, and whether it will derail Todaro’s buy thesis, remains to be seen.
Overall, COIN shares get a Moderate Buy rating from the analyst consensus on Wall Street. The stock has 15 recent reviews, breaking down to 11 Buys, 3 Hold and 1 Sell. The average price target here is $355.54, implying ~38% upside from current levels. (See COIN stock analysis 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.
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