Coinbase could see “further deterioration,” Goldman warns on downgrade

Amid a rocky cryptocurrency market, Coinbase Global Inc. could be on track for “further deterioration” in its revenue base, according to Goldman Sachs, and come under pressure to cut spending beyond previously announced job cuts.

The company acknowledged in mid-June that it had intervened overly aggressive attitude when hiring and announced it would cut 18% of its staff, but Goldman Sachs analyst Will Nance wrote that the move will only bring Coinbase’s COIN,
Number of employees back to the level at the end of the first quarter.

“We believe COIN will need to significantly lower its cost base to stem the resulting cash burn as retail activity slows,” Nance wrote Monday morning while downgrading Coinbase from neutral to sell.

Shares are down almost 5% in premarket trading on Monday.

Additionally, he sees a tough spot ahead for Coinbase, as the company’s $420 million forecast for stock-based compensation this year accounts for about 42% of Nance’s projected 2022 revenue.

“[W]We believe COIN faces a difficult choice between shareholder dilution and a significant reduction in effective employee compensation, which we believe could impact talent retention,” he wrote.

Additionally, Nance noted that he is “incrementally more pessimistic about the competitive landscape and prospects for lowering fee rates given the announced merger of the Coinbase and Coinbase Pro platforms, which has the potential to reduce switching costs and make lower prices more readily available.” its users.”

He emphasized that rival crypto broker Binance.US has reduced fees for bitcoin pairs, a move he’s not “particularly concerned” about due to Binance.US’s relative size, although he said the momentum is ” reinforces the bearish thesis on rate compression over time and likely contributes to longer-term pricing concerns.”

He pointed out that Coinbase is currently valued at around $11.5 billion and had a net cash position of $3.8 billion as of the end of the first quarter, despite about $1.3 billion Dollars of that in crypto assets were lost, which could mean a “significant disruption” to current trends.

Read: “I thought it was a sick joke” – You gave up other job offers to work for Coinbase and are now unemployed

“[W]We believe valuation support is limited as (1) higher earnings would require higher crypto prices and higher volatility in the near term and (2) we forecast breakeven to negative Adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] in the years to come,” he concluded.

Coinbase stock is down 75.2% year-to-date through Friday, while bitcoin BTCUSD,
is down 54.2% and the S&P 500 Index SPX,
has lost 17.9%.

While Nance takes a more negative stance on Coinbase, he is increasingly positive on Robinhood Markets Inc. HOOD.
Upgrade the stock to neutral from sell.

“Fundamentals for HOOD remain very weak in our view, as the ongoing decline in retail risk appetite has weighed on active users and margin balances,” he wrote. “However, the shares now trade at a market cap of ~$6.5B compared to a cash position of ~$6.2B and a tangible book value of ~$7B.”

While Nance anticipates some pressure stemming from cash burn and net income burn, he wrote that rising interest rates are “likely to result in a significant acceleration in net interest income over the next few quarters and will help reduce HOOD’s losses to manageable levels.” to reduce”.

The stock is up almost 3% in premarket trading on Monday. Coinbase could see “further deterioration,” Goldman warns on downgrade

Brian Lowry

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