The Ratings Game: Coinbase faces a ‘murky’ future as it chases profit goals, analyst says

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Coinbase Global Inc. saw improving cryptocurrency trends in January after a dismal end to the year, but Wall Street is focused on the long term.

Specifically, in the wake of Coinbase’s COIN, -4.12% fourth-quarter report, analysts are curious about the company’s target for positive adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) regardless of market conditions. Coinbase has conducted two rounds of substantial job cuts and tweaked its compensation policies as well in pursuit of expense discipline.

“We aspire to be an all-weather company,” Chief Financial Officer Alesia Haas said on the earnings call Tuesday afternoon.

There are also regulatory issues dogging Coinbase. With a recent crackdown by the Securities and Exchange Commission on other crypto players, some analysts are concerned about whether aspects of Coinbase’s business will face pressure.

Coinbase shares were near flat in Wednesday morning trading following the report.

DA Davidson analyst Christopher Brendler saw a better profit story coming out of the latest quarter, though he maintained a neutral rating on the stock amid regulatory concerns.

See more: Coinbase stock downgraded after ‘furious rally’

“Although underlying drivers were more mixed (interest income huge, retail trading not), we believe these results are encouraging and materially improve the profit outlook,” Brendler wrote in his note to clients.

Needham’s John Todaro maintained a buy rating on the stock “as the company focuses on managing expenses tightly amidst a more attractive higher trading volume/crypto price backdrop” this year. But he too is contemplating potential regulatory impacts, particularly as Coinbase’s fourth-quarter results benefited from interest income related to the USDC stablecoin.

“As most crypto assets declined in value with increasing interest rates, USDC outstanding supply remained relatively stable in a higher rate environment,” he wrote. “As such, it is not unreasonable to expect USDC supply to stay flat or even modestly grow in a rising interest rate environment, which means this business could act as a growing buffer to trading volumes.”

Still, there’s the possibility that any new rules “could result in declining USDC outstanding supply and interest income on the back of the decline,” he noted.

Not everyone was sold on the company’s aims, with Jefferies analyst Trevor Williams writing that he saw a “murky path back to profitability” for the company.

Williams added that he was “still skeptical of out-year profitability potential absent a higher-for-longer crypto backdrop or further OpEx [operating-expense] cuts.” He maintained a hold rating on Coinbase’s stock.

BofA Securities analyst Jason Kupferberg chimed in that there was “nothing thesis-changing” in the latest report, as he reiterated an underperform rating on the shares.

“Overall, the boost from higher rates to interest income is helping stabilize the top line (albeit representing lower quality revenue) while OpEx controls have helped stem losses,” he wrote. “That said, we think [Coinbase] continues to face meaningful headwinds (regulatory, competitive, lack of revenue diversity) that keep us cautious.”

Kupferberg noted “very little” visibility into revenue trends going forward.