Sizing Up The Opportunity In Coinbase (NASDAQ: COIN)

A single daily candlestick won’t tell the viewer much about Coinbase’s (NASDAQ: COIN) first day of public trading, but there’s more than meets the eye here. Having had a reference price of $250 set by the Nasdaq and Goldman Sachs on Tuesday, shares started trading at $380 on Wednesday morning and justified the hype they’d created. 

In what was an unsurprisingly volatile session, they quickly jumped as high as $430 before trending down for most of the day. Pre-market action on Thursday had them up 10% so investors can expect plenty more of where that came from. 

Most of the recent headlines have been bullish on the company’s prospects, notwithstanding they already command a market cap of around $100 billion. Cathie Wood of ARK fame was quick to say she’d snapped up close to $250 million worth of shares for some of her funds, and plans to keep adding on any dips in the coming years. 

$600 Price Target

MoffettNathanson made their expectations clear for all to see earlier this week with a $600 price target as they initiated coverage on the stock with a Buy rating. In a note to clients, they said “we view Coinbase as a leading technology infrastructure provider for the cryptocurrency ecosystem, providing essential building blocks to facilitate the use of cryptocurrencies, including market-leading crypto storage and exchange capabilities. As the company describes it well, Coinbase provides an ‘on-ramp to the crypto economy’ enabling consumers, financial institutions, and businesses to easily and efficiently transition between fiat and cryptocurrencies, and securely store and use cryptocurrencies”.

This trickle-down effect to actual cryptocurrencies has already been seen, with Bitcoin hitting an all-time high above $63,000 this week as the hype around Coinbase’s IPO reached a peak. There’s no doubt that cryptocurrencies are becoming more and more mainstream, with most big banks now running some form of the crypto trading desk, and releasing regular research notes. 

It’s easy to see why there’s so much hype around Coinbase itself as it hits the mainstream with an IPO. As the market leader in crypto exchanges, it offers the only truly reliable infrastructure for trading what has become a trillion-dollar asset. D.A. Davidson has called Coinbase's listing its “Amazon moment”, noting how “the crypto and the traditional financial systems are becoming truly intertwined." They see its market position at a seminal moment in the industry comfortably supporting a $440 price target, with preliminary Q1 estimates already knocking initial analyst expectations out of the park. 

Weighing Up The Opportunity

To be sure there are plenty of bears urging caution, who are pointing to overhyped tech IPOs in the past that landed flat on their face, such as Deliveroo in the UK last week or Snap NYSE: SNAP in 2017. But Wall Street can be a fickle beast, with rhyme and reason often not coming into the picture. What is for sure, is that all the more traditional stockholders, like family-run offices and hedge funds, now have an easy way to get solid exposure to crypto-currencies, whereas previously their investment mandates lacked digital assets. That surely has to count for something, as must the risk-on sentiment that markets are experiencing right now. 

Having had a correction in February, the tech-heavy Nasdaq index is back to all-time highs, and investors are once again on the hunt for high growth stocks. It seems to be part of the game that these are for the most part as yet unprofitable companies that still command a lot of headlines. By that metric alone Coinbase is going to be a hot ticket item for some time yet.