Coinbase Soars on JPMorgan’s Rating Upgrade Ahead of Earnings

The trading of Coinbase (COIN) began with a 6% increase in the early hours of February 15th. This surge was due to the rising prices of digital tokens and a recent upgrade in the company’s rating by JPMorgan analysts. Kenneth Worthington, an analyst at JPMorgan, had previously downgraded the stock in January but changed his position this time, revising the rating from underweight to neutral. He attributed this change to the positive impact of Bitcoin exchange-traded funds (ETFs) on the cryptocurrency market.

Worthington sent a note to clients on February 15th, stating that the recent increase in flows into Bitcoin ETFs and the significant appreciation of Bitcoin and Ethereum have led them to return to a neutral rating on Coinbase. They believe that the higher cryptocurrency prices will not only sustain but also improve the company’s activity levels and earnings potential in the first quarter of 2024. Bitcoin ETFs have shown strong demand, amassing over $10 billion in assets under management in just one month of trading. Coinbase’s custody arm has partnered with several asset managers that launched Bitcoin ETFs, and these products are expected to generate fees of $25-30 million for the company.

There are concerns about Coinbase’s profitability. According to InvestingPro’s analysis, the company has a negative operating income margin of -55.53%, indicating that it may not be profitable this year. Bloomberg analysts predict that the exchange will incur losses of around $16 million in the last quarter of 2023. Despite this, some analysts, like John Todaro from Needham & Company, anticipate that Coinbase will post a net income of $103 million, which could lead to profitability for the first time in two years.

In addition to financial challenges, Coinbase is also facing legal troubles with regulators. The United States Securities and Exchange Commission (SEC) filed a lawsuit against the exchange in June 2023, alleging that it offered unregistered securities. Despite these obstacles, investors seem optimistic about the long-term prospects of the company. The stock has seen a one-year price total return of 131%. InvestingPro warns that the current trading price of COIN indicates a “high Price/Book multiple,” suggesting that the stock may be overvalued compared to the company’s actual net assets.

JPMorgan’s Worthington has maintained the target price for the stock at $80, which is significantly lower than the current trading price of $170 at the time of writing the article.