Coinbase stock is headed for its worst-ever drop, but fears are “greatly overblown,” says the analyst

Coinbase Global Inc. shares tumbled on Wednesday after the cryptocurrency market issued a disappointing earnings report amid a slowdown in digital asset trading.

The company saw a sharp drop in the number of monthly users transacting on its platform last quarter and said it expects even fewer such users in the current period. Its shares plunged 26% in Wednesday afternoon trading and were on track to post their worst single-day percentage decline on record.

Despite the bleaker near-term outlook for the crypto market, analysts overwhelmingly maintained their bullish views on the company. While at least 13 cut their price targets by an average of 40%, none from FactSet chose to downgrade the stock to Coinbase’s COIN,
Current Results.

Of the 28 Coinbase followers tracked by FactSet, 20 have buy ratings, six have hold ratings, and two have sell ratings.

Coinbase’s management team sounded bullish on the near-term challenges facing the company, with Chief Executive Brian Armstrong saying at the company’s earnings call that the downside “represents a huge opportunity because we’re greedy when others are scared.”

“We tend to attract great talent in these times and others turn around, they get distracted, they get discouraged,” he said. “That’s why we tend to do our best work in a down phase.”

The company is continuing with its plans to make 2022 an investment year.

At least some of the optimistic analysts seemed to agree.

In a note titled “What doesn’t kill COIN makes COIN stronger,” DA Davidson’s Christopher Brendler wrote that his estimates “received significantly drop” but added that he and his team “agree with management’s commitment to growth.” and believe investors’ patience will pay off.”

He maintained a buy rating on the stock but lowered his price target to $135 from $160.

BTIG’s Mark Palmer said the concerns that caused Coinbase’s sharp sell-off following the report “appear grossly overstated given the liquidity and long-term growth prospects.”

Palmer noted that he has “a clear eye on the potential impact of a severe Fed tightening cycle and the potential that this cycle could lead to an economic recession,” although he said Coinbase’s stock price is no credit to the company for its “abundant cash and cash equivalents” such as about $6.1 billion in cash and equivalents, along with around $1 billion in crypto held for investment.

It also “ignores” Coinbase’s leadership position and its more recent initiatives like a marketplace for non-fungible tokens (NFTs).

He reiterated his buy rating on the stock but lowered his price target from $500 to $380 amid near-term headwinds.

“At the same time, we think it’s highly likely that at some point in the not too distant future investors will look back at the levels at which COIN was trading today and wonder how it ever hit those lows given the company’s extensive resources and its significantly advantageous position within the crypto space,” Palmer wrote.

Needham’s John Todaro also focused on what he saw as a bigger picture.

“Blockchain rewards could have a bigger impact in the latter half of the year as well as in the years following the rise of proof-of-stake tokens,” he wrote. “Additionally, we believe crypto adoption will accelerate over the long term and that Coinbase is the best retail ramp available today.”

Todaro has a Buy rating on the shares, despite lowering his price target to $173 from $360.

However, those analysts who had been on the sidelines when preparing the report were less optimistic.

“While the long waiting list to join the NFT platform may generate positive headlines, the party may be short-lived as interest in NFT continues to wane,” wrote Mizuho’s Dan Dolev, who has a neutral rating on the stock and its Price target lowered to $135 from $150.

Bernstein’s Harshita Rawat said that Coinbase “earns too much” in terms of the fees it charges and the “hundreds of dollars” in average revenue per use it generates due to fees and high trading volume.

“Thus, the growth of COIN (even outside of the broader performance of the crypto market) will be limited by consumer disposable income and intensifying competition from crypto-native peers and fintechs,” she wrote. “The exception here, of course, is income diversification beyond crypto trading, which is in early innings (e.g. lots of work on NFTs) and also somewhat related to crypto asset prices (e.g. custody, staking). is – as we have seen this quarter.”

She maintained a market performance rating on the shares, while lowering her price target to $80 from $200, in a note titled, “Spending defiantly in the face of a potential crypto winter.” Bold or unwise?”

“While we understand the desire to reinvest in order to dominate the Web3 user interface (and monetization), we are also concerned that increased investments are the result of greater competitive pressures,” he wrote. “Indeed, competition is intensifying in almost all of COIN’s businesses.” Coinbase stock is headed for its worst-ever drop, but fears are “greatly overblown,” says the analyst

Brian Lowry

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