Coinbase has 29% upside as the exchange is the 'flagbearer' of the crypto economy, JMP says

• Coinbase stock has 29% upside from its current price as the "flagbearer" of the crypto economy, JMP Securities said.
• Coinbase shares, rated at market outperform, will reach $300, according to analysts Devin Ryan and Brian McKenna.
• They outlined three reasons why the stock will continue to outperform.

Coinbase stock has 29% upside from its current price as the "flagbearer" of the cryptocurrency economy since both the company and the industry are still in the early innings of their growth cycles, JMP Securities said in its initial coverage of the stock Tuesday.

Shares of the largest US crypto exchange, rated at market outperform, will reach $300, according to analysts Devin Ryan and Brian McKenna. Coinbase is trading 1.26% lower to $229.32 as of 1:19 p.m. ET Tuesday.

"Coinbase is a flagbearer in the development of the broader crypto economy, and we expect it will remain a leader in the industry for years to come," they said.

The firm, during its second-quarter earnings, said it aspires to become the "Amazon of assets," which the JMP analysts said is a fitting analogy.

"Amazon was able to take its tech and operational expertise, and employ that into adjacent markets over time," they noted. "Amazon's advantage was in leveraging its leading scale, networks and logistics chains, and overall expertise and experience, which created value in these new markets as well."

Here are three reasons why JMP sees Coinbase's stock continuing its rise:

1. Mainstream adoption of cryptocurrencies

The analysts said the fate of Coinbase is tied directly to that of the broader crypto market, which has "already hit escape velocity."

In particular, they point out that bitcoin's market capitalization has peaked to $1 trillion faster than any other company in history and the billions of dollars of investment the crypto space has continued to receive.

"Despite the exponential scaling of adoption, we think the industry is still in its formative stage, and as use cases for crypto rapidly expand, we see tremendous upside for the companies that provide infrastructure to support this growth," the analysts said.

2. First-mover advantage

Coinbase has numerous competitive advantages as the pioneer, JMP said. Coinbase, which went public in April, has been launching new offerings to disrupt the traditional way finance is done. On Monday, it unveiled a new feature that will allow users to deposit their paychecks directly into their accounts on the cryptocurrency exchange.

Yet, even with the company's more than 68 million users as of the second quarter of 2021 - an 84% year-on-year jump - the analysts believe Coinbase has only hit a sliver of its addressable market, leaving significant room for continued growth.

"Coinbase's increasing scale also supports its continued innovation into areas beyond trading, and we believe the ancillary revenue opportunities are almost limitless," they said. "As the business model evolves, we expect transactional revenues will become a smaller portion of overall revenue, and, as this revenue transition takes place, we believe a case for a higher valuation multiple can be supported."

3. Risk/reward upside

As Coinbase expands into new areas that the market may not even anticipate, JMP said the risk/reward in shares is attractive.

The analysts don't see Coinbase stock moving in a straight line but added that there is material upside that offsets the risk. The stock, they said, is just 6.0x EV/2023E revenue in contrast to other high-growth and leading brand fintech firms.