Coinbase Rides Crypto Wave, Beats Expectations Amid Market Storm

Key Takeaways

• Coinbase beats fourth quarter earnings forecasts on the back of a crypto rally, especially the rise in interest fueled by BTC ETFs.
• JPMorgan upgrades Coinbase outlook, citing the positive impact of Bitcoin ETFs.
• Despite profitability and legal challenges, Coinbase stock sees some gains.

Coinbase (COIN) surpassed analysts’ forecasts for both earnings and revenue in the fourth quarter of 2023, taking advantage of the benefits of rising cryptocurrency values.

The US-based crypto exchange reported earnings of $1.04 per share, significantly ahead of the consensus estimate of $0.02 per share from FactSet.

2023’s Crypto Rally Peaks in Q4 with Bitcoin ETF Approval

Coinbase’s revenue reached $953.8 million, outpacing the anticipated $826.1 million, according to the company’s statement .

Throughout 2023, cryptocurrency prices experienced significant growth, with the momentum sharply increasing in the fourth quarter. This surge was largely fueled by the anticipation and eventual approval of Bitcoin ETFs last month, reigniting enthusiasm for crypto.

This upswing in interest appeared to benefit Coinbase significantly. The exchange reported a 100% increase in trading volume compared to the third quarter. The trading volume for the fourth quarter reached $154 billion, surpassing the expected $142.7 billion.

Coinbase exceeded its own projections for 2023 by reporting an adjusted EBITDA of $964 million. This result came after the company predicted a “meaningful” positive outcome in this metric for the year.

Looking ahead, the company anticipates generating between $410 million and $480 million in subscription and service revenue for the first quarter of 2024, having already secured approximately $320 million by February 13.

Following these announcements, Coinbase’s stock saw an increase of about 13% in post-market trading. This rise added to a 3% gain during the regular trading session. Despite this positive movement, COIN shares have declined around 4% so far this year, contrasting with a 23% rise in the price of Bitcoin (BTC).

Rating Boost from JPMorgan Amid Crypto ETF Optimism

Coinbase’s recent surge in positive sentiment received an additional boost on February 15, when JPMorgan analysts upgraded their outlook on the cryptocurrency exchange’s stock.

Following a downgrade in January, JPMorgan’s Kenneth Worthington revised the stoc k rating from underweight to neutral. This change is, at least in part, down to the influence of Bitcoin exchange-traded funds (ETFs) on the cryptocurrency markets. In a note to clients on February 15, Worthington highlighted the positive trajectory spurred by the introduction of Bitcoin ETFs.

He wrote :

“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 as we see the higher cryptocurrency prices not only sustaining, but improving, activity levels and Coinbase’s earnings power as we look to 1Q24.”

Bitcoin ETFs Surpass Expectations, Coinbase Custody Reaps Rewards

Bitcoin ETFs experienced a remarkable debut, accumulating more than $10 billion in assets under management within their first month on the market. This strong demand for the new cryptocurrency investment option surpassed the expectations of many analysts.

Coinbase’s custody division has established partnerships with the majority of asset managers who introduced Bitcoin ETFs in January. These collaborations are expected to generate substantial revenue for Coinbase, with fee estimates ranging between $25 million and $30 million.

Profitability Hurdles Amid Legal Challenges

Coinbase’s financial outlook appears uncertain as the exchange grapples with profitability challenges. Analysis from InvestingPro highlights a -55.53% negative operating income margin for Coinbase, indicating the company’s struggle to cover costs effectively.

Bloomberg analysts predict the exchange might report losses of approximately $16 million for the last quarter of 2023. In contrast, John Todaro from Needham & Company projects a more optimistic outcome. The analyst forecasts a net income of $103 million for Coinbase, which could mark a return to profitability after two years.

Complicating its financial landscape, Coinbase faces legal issues. These include a lawsuit from the United States Securities and Exchange Commission (SEC) in June 2023, accusing the exchange of offering unregistered securities.

Despite these challenges, investor sentiment seems buoyed by the exchange’s potential for long-term growth, as shown by a 131% increase in the stock’s one-year price total return. However, InvestingPro notes that Coinbase’s current high Price/Book multiple may suggest the stock is overvalued relative to the company’s net assets.