Coinbase Stock Is Soaring. What Its Earnings Say About Where Bitcoin Goes Next.

Coinbase
stock rose 15% after the open on Friday. The company reported earnings late Thursday of $1.04 a share on $954 million in revenue, beating expectations among analysts surveyed by FactSet of two cents a share in earnings on revenue of $826 million.

Shares in the company have ripped higher in recent months, outpacing gains across Bitcoin and other digital assets, which last year limped out of lows notched in a brutal bear market that lasted through much of 2022 and into 2023. Coinbase stock, while down almost 5% this year, has still more than doubled in the past six months. The price of Bitcoin has risen 80% over the same period to two-year highs.

The earnings cheered many analysts who follow the stock. They noted that increased competition from other brokers hasn’t yet forced the company to bring down fees, and that Coinbase is becoming less reliant on trading for its revenue.

”We believe results adequately address the bear arguments” on Coinbase, wrote Wedbush analysts in a note after the earnings report. Wedbush, which has an Outperform rating on the stock, raised its price target to $200, about 5% above Friday’s price of $190.

Oppenheimer analyst Owen Lau wrote that Coinbase’s profit, which was its first since 2021, could change the company’s “unprofitable image.” Lau pointed to adoption of Bitcoin exchange-traded funds and potential Federal Reserve interest-rate cuts, among other catalysts, as reasons to be bullish on the stock. Oppenheimer has an Outperform rating on Coinbase with a $200 price target.

Since a bulk of Coinbase’s business lies in its brokerage—with revenue driven by fees from buying and selling tokens—the company remains sensitive to digital asset market conditions. It tends to do well during periods of intense volatility or bullish runs.

The surge in Bitcoin prices in the fourth quarter helped Coinbase’s transaction revenue jump to $529 million from $289 million in the third quarter. The company’s outlook also bodes well for continued trading momentum in the current quarter: Coinbase said it had generated some $320 million of transaction revenue as of Feb. 13, around halfway through the first quarter.

“We continue to urge caution in extrapolating these results,” Coinbase said in its earnings release. Still, that preliminary metric suggests activity is growing, which is likely good for both the company and crypto prices.

Moreover, there are signs within Coinbase’s results that bullish sentiment is spreading beyond Bitcoin to other tokens. During the quarter, traders’ attention increasingly turned to altcoins—smaller tokens beyond Bitcoin and Ether, like Dogecoin.

Bitcoin’s share of Coinbase trading volumes fell to 31% in the fourth quarter from 38% in the third quarter. The trading volume share of
Ether
—the second-largest token—saw a milder decline, also reflecting the trend of traders looking beyond Bitcoin. Its share fell to 15% in the last quarter from 19% in the prior period. Meanwhile, altcoins saw a surge in interest: Their share of trading volumes jumped to 42% in the fourth quarter from 28% in the third quarter.

When traders ditch Bitcoin and Ether in favor of smaller cryptos, it suggests that bullish sentiment toward crypto overall is strengthening. Indeed, Bitcoin has gone on to hit a two-year high since the start of this year—but the shift could also indicate that Bitcoin’s period of outperformance may soon be over in favor of altcoins.

In any case, all of it benefits Coinbase. Some analysts, however, like Coinbase bear Dan Dolev of Mizuho Securities, see altcoins as “lower-quality revenue,” as he wrote in a note after the broker’s results. Tell that to the market, though—betting against Coinbase stock has been a particularly bad bet over the past year, and continues to be so.

Write to Jack Denton at jack.denton@barrons.com and Joe Light at joe.light@barrons.com