3 Bitcoin, Fintech Play That Can 2x From Current Levels? Why This Analyst Is Bullish On Block, Coinbase, PayPal – Bitcoin (BTC/USD)
Payment intermediaries Block Inc. SQ and PayPal Holdings Inc. PYPL and cryptocurrency exchange Coinbase Global Inc. COIN announced its quarterly results late Thursday.
What happened: CANACCORD Genuine analyst Joseph Vafi maintained a Buy rating and $150 price target on Block shares. The analyst also maintained a Buy rating and $160 price target on PayPal. For Coinbase, Vafi maintained his Buy rating and $120 price target. Vafi’s price target implies an upside of at least 100% to each of the three shares from Thursday’s closing level.
Block can increase market share by leveraging on 2-sided networks: Block’s dual ecosystem model continues to evolve and expand, with Cash App recorded its highest quarterly inflow of $52 billion, Vafi noted. The analyst sees this as a function of increasing “Cash Card” and “Direct Deposit” growth.
Even amid the macro uncertainty, merchant gross payment volume in the US was stable in October, likely helped by gains in market share.
“While near-term macro trends remain uncertain, we believe Block is well positioned to leverage its two-sided network to increase market share,” CANACCORD said.
Commenting on the quarterly results, the firm noted that net revenue growth, excl Bitcoin BTC/USD was 37%, with transaction and subscription revenues rising 17% and 71% respectively.
“Buy now, pay later” contributed $105 million to revenue and $75 million to gross profit, Vafi said. Cash App transaction revenue rose 15%, driven by an increase in the number of transactions and the number of business accounts, and gross profit grew 51% to $774 million, he added.
See also: Trading Strategies for PayPal Stock Heading into Q3 Earnings
PayPal’s user metrics are strong, but lack of diversification is a concern: PayPal’s efforts to invest in its best growth prospects are reaping benefits, Vafi said in a separate note. The company’s several initiatives from earlier this year are paying off, with the launch of Venmo on Amazon Inc. AMZN and the announcement of integration into Apple Inc.’s AAPL payment products, he added.
That said, PayPal remains an e-commerce play and has made less progress in the personal finance and merchant solutions markets relative to its peers, the analyst said. In a tougher macro scenario, less diversification is an incremental negative, he said.
“PYPL continues to have a huge following, with 400+ million active users and ongoing expansion of user engagement,” Vafi said.
The analyst noted that the company downgraded its fourth-quarter GPV, citing a slow start to holiday spending, but raised its revenue outlook, largely due to cost-cutting. He described the third-quarter result as sold, with EPS and revenue exceeding guidance.
The company added 2.9 million in net new user additions and user engagement was strong, with the number of payment transactions increasing 15% to 5.6 billion, the analyst noted.
Coinbase Customers HODLing, Not Going Away: Coinbase remains sound in terms of its strategy and roadmap, CANACCORD’s Vafi said, highlighting the exchange’s revenue diversification strategy through increased subscription and services, offshore expansion.
The analyst noted that the company reduced its operating expenses by 22%, excluding an impairment charge.
“While many of COIN’s customers are not trading much right now, they are holding on and have not gone away,” the analyst said.
Vafi said he remains focused on Coinbase’s blockchain Cloud strategy it is rolling out, which is likely to provide Fintechs, enterprises and incumbents with more functionality via software and broader technology solutions. Increased industry-wide and company-specific regulatory scrutiny is also under the scanner, he added.
Coinbase stock’s performance is 100% tied to underlying crypto spot prices over the medium term, the analyst said.
Delving into its third-quarter results, the analyst noted that net income fell 28% sequentially to $576 million in the third quarter due to the decision not to chase trading volume in some offshore jurisdictions. Adjusted EBITDA loss narrowed significantly from the second quarter, reflecting the possibility of more cost cuts, the analyst said.
Price action: In premarket trading on Friday, Block rose 14.43% to $61.69, PayPal fell 7.29% to $70.97 and Coinbase rose 8.26% to $60.41, according to Benzinga Pro data.
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