Coinbase Is Upgraded Ahead of Earnings. Will It Deliver?

Coinbase stock was upgraded to Overweight from Neutral at JPMorgan with a $404 price target, up from $342. (Dreamstime)

Key Points

• J.P. Morgan upgraded Coinbase to Overweight from Neutral, raising its price target to $404 from $342, citing emerging monetization and abating risks.
• A potential token for Coinbase’s Base network could add up to $12 billion in value, and Coinbase One could add $1 in annual earnings.
• Compass Point reiterated a Sell rating on Coinbase, expecting an Ebitda beat but warning that higher operating expenses could offset it.

Coinbase Digital is just days away from its third-quarter earnings report, and the cryptocurrency exchange is getting a fresh vote of confidence.

J.P. Morgan analyst Kenneth Worthington upgraded Coinbase to Overweight from Neutral on Friday and raised his price target to $404 from $342.

The new rating reflects “emerging monetization opportunities and abating risks at what we see is an attractive valuation versus cryptocurrency peers,” Worthington wrote.

Shares were up 7.3% to $346.22 on Friday. Fellow crypto-linked stocks Robinhood Markets and Strategy rose 3% and 1.3%, respectively. The price of Bitcoin was up 0.1% over the past 24 hours to $110,386, according to CoinDesk data.

Coinbase earlier this year raised the possibility of a token for Base, the secondary blockchain network it launched in 2023. Base creator Jesse Pollak, who is one of the company’s top executives, indicated Coinbase was looking into a token during a company event in September, though Coinbase has yet to formally confirm its launch.

If this were to pan out, Worthington estimates the token would allow Coinbase to capture more of the blockchain’s growth, culminating in up to $12 billion in value for the company.

He believes Coinbase could potentially attract more users to Coinbase One, its monthly subscription service, by testing out different yields on USDC. The platform currently offers subscribers a 4% yield, or interest earned by depositing the crypto, compared with 0% for nonsubscribers.

Through this process of “segmenting customers and promoting Coinbase One,” Worthington believes the company could add up to $1 in incremental earnings each year.

USDC is a so-called stablecoin, a crypto pegged to the U.S. dollar that is issued by Circle Internet Group. Coinbase has an agreement with Circle to distribute USDC in exchange for USDC reserve income.

All in all, Worthington believe’s Coinbase’s range of operations as “a broker, market-maker, and exchange” broadly support profitability. The company also serves to benefit as market share stabilizes between decentralized exchanges, or peer-to-peer crypto marketplaces, and centralized platforms like Coinbase itself.

“We see Coinbase better positioned than peers focused in different asset classes,” Worthington wrote. The company is set to report third-quarter earnings on Oct. 30.

Other analysts are less enthusiastic heading into the print. Compass Point’s Ed Engel reiterated a Sell rating on the stock Monday, saying he was tempering expectations, even as he raised his price target slightly to $277 from $248.

While Engel expects the crypto exchange to post revenue that beats consensus estimates, excluding a $43 million contribution from the acquisition of Deribit, he identified “a number of factors that could cause actual results to underwhelm versus increasing expectations.”

These included a limited Ebitda beat alongside a less profitable shift to Subscription & Services from its legacy retail trading business.

Moreover, management said last month it was focused on reinvestment in 2025, Engel added. “As such, higher (operating expenses) could offset much of the Ebitda beat we believe investors are expecting.”

After its five most recent earnings reports, Coinbase stock has sold off by over 3%, Engel noted. It is clear investors have high hopes for the crypto exchange. Time to see if Coinbase can deliver.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com