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The Coinbase app.
David Myslivec/Dreamstime.com
Coinbase Global
stock has washed out along with the cryptocurrency market over the past week, dropping to the low $200s after debuting at more than $300 last month.
More than traditional brokers or exchanges,
Coinbase Global
(ticker: COIN) is dependent on hot crypto markets to keep its revenue aloft, and a crypto winter is clearly bad news. Bitcoin is down 40% from the highs it hit last month on the day of Coinbase’s direct listing.
In Tuesday morning trading, Coinbase stock was up 2.7%, at $231.35.
Analysts are split on whether the latest crypto downturn presents a longer-term problem for the stock, or if Coinbase can bounce back by expanding its user base and services. J.P. Morgan and
Goldman Sachs,
which advised Coinbase on its direct listing, initiated coverage of the stock this week with Buy ratings. But Mizuho analyst
Dan Dolev
reduced his price target and revenue estimates out of fear that the company’s growth engine could stall.
Goldman analyst Will Nance initiated coverage on Monday with a Buy rating and a $306 price target, arguing that the company will be able to expand the services it offers to investors so that it isn’t so dependent on frenzied crypto trading to help its earnings. Nance expects Coinbase to continue expanding its market share even as competition intensifies.
J.P. Morgan analyst Kenneth Worthington, who initiated coverage on Tuesday with an Overweight rating and a $371 price target, expects Coinbase to grow as it converts “interested” users to “active” ones and as it adds services that let it profit more like a traditional broker. That includes things like “staking,” a service that allows users to earn interest on their crypto holdings.
Right now, the company makes the vast majority of its revenue from transaction fees, meaning it needs people to become more active on the platform. While Coinbase has 56 million verified users, just 6.1 million of them transacted on a monthly basis in the first quarter.
The company has already had success at increasing transaction activity—an average of 4% of users transacted monthly before last year’s fourth quarter. That rose to 6% in the fourth quarter and 9% in the first quarter of 2021. “It does not sound unreasonable for a third of verified users to make a trade with the proper incentives, including cash (crypto of course) to fund their accounts and/or cash incentives after making the first trade,” Worthington wrote.
But Mizuho’s Dolev doesn’t think Coinbase can insulate itself from a crypto winter if the price of Bitcoin and other cryptocurrencies stays weak. Between the first quarter of 2018 and the first quarter of 2019—the last extended price slump for Bitcoin—the number of active users fell to 0.8 million from 2.7 million.
He now sees Coinbase’s revenue hitting $5.3 billion this year, down from prior estimates of $5.6 billion. He rates shares at Neutral and dropped his price target to $225 from $315.
Write to Avi Salzman at avi.salzman@barrons.com