Wall Street anticipates brutal Coinbase earnings. Why an Analyst Upgraded the Stock.

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Wall Street is mostly subdued ahead of the gains

Coinbase Global
,

He expects deep losses and the lowest quarterly sales in two years from the cryptocurrency brokerage when the group reports earnings after the bell on Tuesday.

A generally dovish tone from analysts – amid mounting regulatory headwinds and few signs of recovery in the key trading business – is putting a notable recent rally behind them

coin base

(Ticker: COIN) stock in the spotlight. But even though shares are up more than 80% so far this year, at least one analyst sees room for more gains.

The stunning rally at the start of 2023 belies Coinbase’s underperforming as the stock is down around two-thirds year-on-year.

Not only was Coinbase stock dragged down by a tough year for the broader market in 2022 – amid skyrocketing interest rates dampening demand for high-growth stocks like those in tech and crypto – but its losses were offset by a crypto crash even tightened. Falling prices for

Bitcoin
and other tokens notably crowded out many of the retail investors that form the core of Coinbase’s trading business and are yet to come into effect.

Add to that the mounting regulatory headwinds, and the picture hasn’t been so rosy lately. Regulators have intensified scrutiny of digital assets since the collapse of rival exchange FTX in November, with federal agencies accelerating crackdowns on crypto companies, products and services in recent weeks.

All of this — against the backdrop of a stocks rally — has analysts fairly cautious on Coinbase, which has an average rating of Hold among analysts polled by FactSet, with an average price target of around $62 below the stock’s Friday close of $65.20.

Analysts agree that Coinbase will post a loss of $2.52 per share in the fourth quarter on revenue of $588 million — its lowest revenue since late 2020. And the prospects for the company look bleak given recent events.

“We see regulation through enforcement as a risk for digitally-focused businesses,” said Kenneth B. Worthington, analyst at

JP Morgan
,

wrote in a note late last week. “Coinbase has focused on building subscription services businesses that are more stable and resilient to crypto market volatility, and we see greater value for equity investors. However, recent actions by the SEC have put various parts at risk.”

JP Morgan is particularly concerned about the Securities and Exchange Commission’s (SEC) attack on staking services at rival exchange Kraken. Staking is a process through which investors can earn returns on tokens such as ether, and is a core pillar of Coinbase’s strategy to diversify revenue away from pure crypto trading.

But not everyone agrees. Chase White, an analyst at Compass Point, actually upgraded Coinbase stock to Buy with a price target of $100 late last week. White is bullish on Bitcoin and sees cryptos converting previous gains into a new bull market this year.

“We believe Coinbase is well positioned to gain market share, particularly among US individual investors, as the crypto bull market returns, which we expect to begin in late H23 and continue through 2024,” White said.

“While Coinbase is currently facing regulatory uncertainties related to several aspects of its business…we believe most issues will ultimately not have a material adverse impact on operations,” White added. “We believe that Coinbase will not only weather the crypto winter, but is well positioned to thrive.”

That puts Compass Point on the more bullish end of Wall Street — and there are definitely some bears. Shorting, or betting against, crypto stocks has been hot business since the collapse of FTX, with traders shorting Coinbase at a much greater rate than the average US stock. Heading into Tuesday’s gains will be a minority of investors taking the other side of the trade.

Write to Jack Denton at jack.denton@barrons.com