Proactive Investors - Coinbase (NASDAQ:COIN) shares added more than 4% on Friday after the cryptocurrency exchange platform was upgraded to ‘Neutral’ from ‘Underperform’ by Bank of America (NYSE:BAC) analysts.
The analysts also more than doubled their price target on the stock from $110 to $217 as they adopted a new valuation methodology on their belief Coinbase has “more durable earnings per share potential.”
Coinbase’s shares added 4.3% just shy of $208 on Friday afternoon.
The Bank of America analysts wrote in a note that they were upgrading Coinbase to ‘Neutral’ in part due to the retail re-engagement with crypto.
They noted that the current macro environment has been positive for cryptocurrency market cap appreciation and trading volume.
“The total crypto market cap peaked in November 2021 at roughly $3 trillion before falling as low as $1 trillion through 2022 and 2023 following a bearish overall environment and more than 500 basis points of Fed rate hikes,” they wrote.
“With the emergence of a new bull market last year and the Securities and Exchange Commission (SEC) approval of multiple spot Bitcoin ETFs in January broadening the investor base, cryptocurrency prices have reaccelerated.”
The analysts view the current market, while volatile, as more robust than prior boom periods due to a large investor audience and more mature brokerage services and a greater focus on a concentrated set of mature coins with less focus on “meme” coins.
Another factor driving the analysts’ upgrade is Coinbase’s expensive cost discipline and ability to benefit from operating leverage following large expense cuts in 2022 that will help it maintain profitability.
“Over the 2022/23 crypto "winter", Coinbase was able to significantly reduce their cost base to more appropriate levels aimed at reaching profitability amidst a precipitous decline in transaction volumes and revenue,” they wrote.
They noted steps including an 18% reduction in headcount announced in June of 2022 and an additional 20% reduction in January of 2023 which drove an approximately 45% year-over-year decline in total operating expenses in 2023.
“We believe Coinbase is much better situated to take advantage of operating leverage going forward to drive bottom line growth with the core capabilities on their platform now having been established,” they wrote.
They noted two main risks to their thesis, the first being Coinbase’s continued dependence on transaction revenue for profitability, which was 66% of total revenue in the first quarter of 2024.
They also pointed to ongoing regulatory overhang linked to the SEC’s lawsuit against Coinbase.