Why aren’t the bulls at Coinbase worried about its convertible debt plans?


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The Coinbase app.

Chris Delmas / AFP / Getty Images

Coinbase Global

surprised investors on Monday night by announcing it would raise around $ 1.4 billion from a convertible debt offer. The stock fell 3.7% on Tuesday, to $ 239, as investors feared the offer would dilute existing shareholders and signal that the company’s balance sheet is not as strong as they had hoped .

Coinbase Global

(ticker: COIN) did not raise funds on its IPO, instead using a direct quote that allowed shareholders to withdraw funds. He has nearly $ 2 billion in cash on his balance sheet and no long-term debt, so his decision to raise money has now baffled some investors.

But several analysts say focusing on the potential dilution of stocks is missing the point. At least three are confident that Coinbase is raising funds 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 on why it wanted to fundraise.

In an e-mail to Barron’s, BTIG analyst Mark Palmer called the offer “opportunistic.”

“The capital that the company raises is remarkably cheap and positions it as offensive,” he wrote. “Given Coinbase’s history in building its platform through acquisition, we wouldn’t be surprised to hear announcements in this direction in the near future.” His target stock price, which he evaluates as a buy, is $ 500.

KBW analyst Kyle Voigt wrote that he expects stock dilution to be “minimal,” less than 1.5% of the company’s stock. He also sees acquisitions in Coinbase’s future and predicts that the company will have $ 3.8 billion in cash after the offering ends.

“We believe that scaling up and adding product capabilities are both very important in this evolving industry and will likely lead to significant consolidation in the short to medium term,” he wrote. Voigt, who rates Coinbase Market Perform, expects the shares to hit $ 325.

Coinbase is trying to expand its business model. At present, it is too dependent on the fees of retail crypto traders. Competition could threaten these fees. So the company has added new lines of business, including services that allow people to earn interest on their crypto holdings and help businesses build blockchain infrastructure.

CFRA analyst Chris Kuiper believes the money could be used for an acquisition or to strengthen the balance sheet if crypto prices fall.

“We believe the extra money could either be used to fund additional growth and acquisitions, or give Coinbase some leeway if we do indeed enter a bearish crypto market, as Coinbase’s business is heavily. linked to the price of crypto-assets, ”he wrote. “However, we maintain that we are still in the middle of the bullish phase of the four-year crypto cycle based on past cycles and on-chain metrics.” Kuiper also has a buy rating on the stock, with a price target of $ 375.

Write to Avi Salzman at [email protected]

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