Market Analyst Reveals All About Coinbase's Ability To Pivot

Berenberg Capital Markets Analyst Mark Palmer recently began covering Coinbase and his analysis reveals that investors should pay attention to the exchange’s ability to pivot amid regulatory uncertainty. Though Palmer set Berenberg’s price target for Coinbase at $55, the stock was trading at $58.40 on Tuesday and was up 74% year to date.

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Berenberg Capital Markets Analyst Mark Palmer recently began covering Coinbase, and his analysis reveals that investors should pay attention to the exchange’s ability to pivot amid regulatory uncertainty. Palmer’s research note, published Monday, noted that Coinbase delivered “better-than-expected” first quarter results, and that it had around $5.3 billion of available cash as of March 31. Though Palmer set Berenberg’s price target for Coinbase at $55 and gave it a “hold” rating, the stock was trading at $58.40 on Tuesday and was up 74% year to date.

This uptick comes despite the news that the SEC issued Coinbase with a Wells notice on March 22, displayed its belief that Coinbase was operating outside of US law, and suggested it would bring an enforcement action against the company soon. Palmer estimates that 37% of Coinbase’s $736 million first quarter net revenue stemmed from token trading and staking services, making the company vulnerable to the new oversight.

In terms of potential pivots, Coinbase recently created a derivatives trading platform in Bermuda and is looking to build a hub in Dubai, though Palmer notes that 86% of the company’s net revenue last year was generated in the US. This means that taking its operations offshore would require considerable investment, and it would be a “tall order” to replace the revenue it would lose from ceasing its US operations.

Citigroup analyst Peter Christiansen lowered his price target for Coinbase from $80 to $65 ahead of the exchange’s first quarter report, while Morningstar analyst Michael Miller gave Coinbase a fair value estimate of $80. Monday, research firm PropNotes published a note that gave Coinbase a “Buy” rating, and praised the company’s efforts to diversify its revenue base.

In conclusion, Mark Palmer’s analysis indicates that Coinbase is well positioned to weather the ‘crypto winter,’ and has enough cash reserves to draw from should it need to pivot its business model. However, the exchange’s vulnerability to SEC regulation, compounded by the fact that the majority of its revenue is generated in the US, suggest that a shift in its services and locations might be difficult. Though the company features a diverse array of expertise, a legal battle with the SEC could prove costly.