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The Ratings Game: Coinbase stock careens toward worst drop on record but fears are ‘greatly overblown,’ says analyst


Shares of Coinbase Global Inc. were cratering Wednesday after the cryptocurrency marketplace delivered a disappointing earnings report amid a slowdown in the trading of digital assets.

The company saw a sharp drop-off in the number of monthly users transacting on its platform during the most recent quarter, and it disclosed that it expected to see even fewer such users in the current period. Its shares were tumbling 26% in Wednesday afternoon trading and on track to log their worst single-day percentage drop on record.

Despite the bleaker near-term outlook for the crypto marketplace, analysts overwhelmingly kept their bullish views on the company. While at least 13 brought down their price targets, by an average of 40%, none tracked by FactSet opted to downgrade the stock in the wake of Coinbase’s

recent results.

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

Coinbase’s management team sounded optimistic in the face of near-term challenges to the business, with Chief Executive Brian Armstrong saying on the company’s earnings call that the down period presented “a big opportunity because we’re greedy when others are fearful.

“We tend to be able to acquire great talent during those periods and others pivot, they get distracted, they get discouraged,” he said. “So we tend to do our best work in a down period.”

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

At least some of the bullish analysts seemed to buy into that view.

In a note titled “What Doesn’t Kill COIN Makes COIN Stronger,” D.A. Davidson’s Christopher Brendler wrote that his estimates “again fall materially” but added that he and his team “agree in management’s commitment to growth and believe investor patience will be rewarded.”

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

BTIG’s Mark Palmer said that the concerns driving Coinbase’s sharp selloff following the report “appear greatly overblown in light of liquidity and long-term growth prospects.”

Palmer noted that he is “clear-eyed regarding the potential impact of a severe Federal Reserve tightening cycle and the potential for that cycle to result in an economic recession,” though he said that Coinbase’s stock price fails to give the company credit for its “ample liquid assets,” such as $6.1 billion in cash and equivalents, along with roughly $1 billion in crypto held for investment.

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

He reiterated a buy rating on the stock but cut his price target to $380 from $500 in the face of near-term headwinds.

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

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

“Blockchain rewards could see a larger impact in the back half of the year as well as in subsequent years following the rise of proof-of-stake tokens,” he wrote. “Further, we believe crypto adoption over the long term will accelerate and that Coinbase is the best retail on-ramp existing today.”

Todaro has a buy rating on the shares, though he reduced his target price to $173 from $360.

Those analysts who had been on the sidelines heading into the report were less optimistic, however.

“While the long waitlist to join the NFT platform can generate positive headlines, the party may be short-lived as NFT interest continues to fade,” wrote Mizuho’s Dan Dolev, who has a neutral rating on the shares and lowered his price target to $135 from $150.

Bernstein’s Harshita Rawat said that Coinbase has been “over-earning” in terms of the fees it charges and the “hundreds of dollars” in average revenue per use that it generates, based on fees and high trading volume.

“So COIN’s growth (even outside of broader crypto market performance) is limited by disposable incomes of consumers, and intensifying competition from crypto-native peers and fintechs,” she wrote. “The exception here, of course, is revenue diversification beyond crypto trading, which is in early innings (e.g., a lot of work to do on NFTs) and also somewhat linked to crypto asset prices (e.g., custody, staking) – as we saw this quarter.”

She kept a market perform rating on the shares, while cutting her price target to $80 from $200 in a note titled: “Defiantly spending in the face of a potential crypto winter. Bold or imprudent?”

“Although we understand the desire to reinvest to dominate the Web3 user interface (and monetization), we also worry whether increased investments are an outcome of greater competitive pressures,” he wrote. “Competition is, in fact, intensifying in almost all areas of COIN’s business.”

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