Coinbase Analysts Laud Strong Q4 Performance, But Wary Of Imminent Regulatory Risk And Trading Volume Outlook

Coinbase Global, Inc. COIN reported better-than-expected fourth-quarter results but signaled a slower start to fiscal year 2022. The softer outlook sent the shares of the cryptocurrency exchange lower on Friday.

The Coinbase Analysts: Oppenheimer analyst Owen Lau maintained an Outperform rating on Coinbase shares and reduced the price target from $444 to $377.

Raymond James analyst Patrick O'Shaughnessy maintained an Underperform rating.

Rosenblatt Securities analyst Sean Horgan maintained a Buy rating and $262 price target.

Needham analyst John Todaro maintained a Buy rating and reduced the price target from $420 to $360.

Coinbase Has Multiple Growth Initiatives, Oppenheimer Says: Coinbase reported revenue ahead of expectations, with subscription and service revenue also exceeding estimates, Lau said. Adjusted EBITDA bettered expectations, reflecting lower-than-expected expenses, he added.

The increase in cash balance relative to the previous quarter gives the management optionality for internal development, crypto investment and M&A, Lau said. The analyst sees multiple growth initiatives, including cloud and analytics, international expansion into Japan and Germany, NFT, derivatives, direct deposit and borrow.

The valuation looks attractive, as the stock is trading at merely 5.5 times the estimated revenues for 2022 compared to 14.7 times for its competition, Lau said.

Related Link: Coinbase Analyst: Crypto Exchange Is 'One-Stop Shop' With Underappreciated Monetization Potential

RayJay Prefers to Be On Sidelines: The fourth quarter undoubtedly was a strong quarter for Coinbase, with results that well surpassed expectations and healthy user growth metrics, O'Shaughnessy said. Trading volumes, however, has fallen substantially to start 2022, the analyst said. The expense outlook is substantially higher than RayJay's expectations, he added.

"Longer-term, we continue to expect substantial pricing compression from competition as well as the unification of Coinbase's two retail apps into one lower-priced app," O'Shaughnessy said.

Additionally, the exchange faces regulatory and political risks such as the applicability of existing securities laws to revenue streams such as staking, new tax reporting requirements, the examination of the best execution obligations for brokers, and the SEC potentially deeming crypto tokens to be securities, the analyst said.

Breadth Of Assets Upside Driver As Well As Risk, Rosenblatt Says: The stronger-than-expected fourth-quarter results were largely driven by higher revenue capture/average revenue per user trends, Horgan said. The underlying driver of the results is from the breadth of the assets listed on the exchange, the analyst said.

This has helped the exchange capture more of the increasing amount of trading volumes outside the majors, or altcoin dominance, he added.

Horgan sees this as equally posing a risk, as many of these coins are at risk of becoming deemed unregistered securities by the SEC.

"Net/net, we see downward revisions to profitability in '22 and the risk of regulatory decisions offset by strong relative positioning," Rosenblatt said.

Needham Analyst Digs Into Q4 Strength And Weak Q1 Outlook: Trading volumes hit a record high and retail take rates remained robust at about 123 basis points, Needham analyst Todaro said. Coinbase attributed its soft first-quarter outlook to lower trading activity on dampened volatility and lower crypto asset prices, he added.

The higher expenses the company flagged is due to its robust hiring agenda for 2022, the analyst said.

COIN Price Action: Coinbase shares closed at 176.83 on Friday, slipping 1.52%.

Photo: Courtesy of Marco Verch Professional on Flickr