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The Coinbase app.
Chris Delmas/AFP/Getty Images
Coinbase Global
surprised investors late on Monday by announcing that it will raise about $1.4 billion through a convertible debt offering. The stock fell 3.7% on Tuesday, to $239, as investors worried that the offering will dilute existing shareholders, and signals that the company’s balance sheet isn’t as strong as they’d hoped.
Coinbase Global
(ticker: COIN) didn’t raise money when it went public, instead using a direct listing that allowed equity holders to cash out. It has nearly $2 billion in cash on its balance sheet and no long-term debt, so its decision to raise money now has puzzled some investors.
But several analysts say focusing on the potential share dilution misses the point. At least three are convinced that Coinbase is raising money to make an acquisition, taking advantage of low interest rates to expand its business model. Coinbase said the money could be used for acquisitions, but declined to go into more detail about why it wanted to raise money.
In an email to Barron’s, BTIG analyst Mark Palmer called the offering “opportunistic.”
“The capital the company is raising is remarkably inexpensive and positions it to go on offense,” he wrote. “Given Coinbase’s history of building out its platform via acquisition, we would not be surprised to hear some announcements along those lines in the near-future.” His price target on the shares, which he rates a Buy, is $500.
KBW analyst
Kyle Voigt
wrote that he expects the equity dilution to be “minimal,” less than 1.5% of the company’s stock. He also sees acquisitions in Coinbase’s future and projects that the company will have $3.8 billion in cash on hand once it completes the offering.
“We believe building scale and adding product capabilities are both very important in this evolving industry and will likely lead to significant consolidation in the near to medium term,” he wrote. Voigt, who rates Coinbase Market Perform, expects shares to rise to $325.
Coinbase is attempting to expand its business model. Right now it’s too reliant on fees from retail crypto traders. Competition could threaten those fees. So the company has been adding new business lines, including services that allow people to earn interest from their crypto holdings and that help companies build blockchain infrastructure.
CFRA analyst Chris Kuiper thinks the cash could be used for an acquisition, or to bolster the balance sheet if crypto prices fall.
“We think the extra cash could either be used to fund additional growth and acquisitions or give Coinbase some breathing room if we are indeed entering into a crypto bear market, as Coinbase’s business is highly levered to the price of cryptoassets,” he wrote. “However, we maintain we are still in the middle of the bull phase of the crypto four-year cycle based on past cycles and on-chain metrics.” Kuiper also has a Buy rating on the stock, with a $375 price target.
Write to Avi Salzman at avi.salzman@barrons.com