Coinbase Stock Rallies On Prediction It Will Survive The Crypto Winter

Coinbas
COIN
e’s badly battered stock rallied a bit this morning after D.A. Davidson analyst Christopher Brendler released a cautiously optimistic note describing the nation’s largest crypto trading firm as “ready for winter.” As of early afternoon, COIN was trading at $53.65, up 5%, while the NASDAQ
NDAQ
was flat. After listing publicly last April, the stock surged as high as $368 and hit a low of $46 on June 12.

As crypto prices have plummeted, so too has Coinbase’s trading volume. In the second quarter of 2022, that volume fell 31% from the first quarter, taking a big bite out of the company’s primary revenue stream. This led Brendler to drop his price target for Coinbase stock over the next year from $135 to $90, but he ultimately sees the market downturn as opening up acquisition opportunities for well-funded players in the crypto space such as Coinbase. When asked about potential targets, Brendler suggested Coinbase’s goal may be international expansion.

“Either new products or new geographies. They have really been pretty vocal about their desire to expand internationally,’’ Brendler told Forbes. “That can be expensive because when you come to new regulatory relationships, new banking, financial regimes that you’re dealing with, so it may make sense in certain geographies to make an acquisition or two to smooth that process and scale up even faster.”

Coinbase currently has $6.1 billion in cash on hand, but to survive falling revenue has needed to cut operating costs. In June, Coinbase joined a myriad of other fintechs in a round of lay-offs, shrinking its workforce by 18%. Additionally, the company has $3.4 billion in long term debt and has yet to show consistent profitability. One concern for the company is that 90% of revenue comes from its flagship trading business, which is tied to the volatile crypto market. Bitcoin
BTC
, the most valuable cryptocurrency, is down 59% year to date. Coinbase’s efforts to diversify revenue streams have included an NFT marketplace, a staking business, and a lending product which was discontinued after a battle with the SEC.

“There’s certainly a bearish narrative out there where if you look at their profitability and their financial situation, they are not debt free, which is something we are concerned about these days and they’re not going to be profitable this year, most likely, given what’s happening to crypto volumes and a lot of their revenue is directly tied to crypto trading so it’s going to be tough for them to profit this year, but they do have a lot of flexibility,” Brendler said. “They still have this amazing franchise and brand and the fact that they have to scale back a little bit, it may not be the best news, but ultimately, I know that they’re not going to be in a situation where they’re struggling to survive, like other peers are going to be if the winter gets worse. They have been through it before and I’m confident they’ll be able to get through it again.”

Despite Coinbase’s brand and popularity among retail traders, COIN is down 79% year-to-date.

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