Goldman Sachs didn’t get it right about Coinbase Global—and is acknowledging that its bullish view about the crypto exchange was off.
On Wednesday, analyst Will Nance lowered his rating for the cryptocurrency-trading platform’s shares to Neutral from Buy, citing a softening earnings outlook.
“In the current macro backdrop, we believe COIN is unlikely to return to recent levels of profitability,” Nance wrote. “In an environment where the market is focused on profitability, recession risk, and the fading of pandemic-driven exuberance in retail trading, we believe COIN’s stock will struggle to outperform in the near term.”
The analyst noted there is downside risk to Coinbase’s revenue if cryptocurrency trading activity drops further. He slashed his price target for Coinbase (ticker: COIN) by 67% to $80 from $240.
Goldman didn’t immediately respond to a request for comment about the timing of the downgrade.
Goldman’s move came a day after Coinbase posted disappointing March quarter results. It reported $1.17 billion in revenue, which was below the consensus estimate of $1.5 billion. The company also generated a net loss of $430 million, compared with net income of $388 million in the same quarter last year. Management repeated it could lose as much as $500 million in adjusted Ebitda—earnings before interest, taxes, depreciation, and amortization—this year under a “prolonged and stressful scenario” for their business.
In recent trading Wednesday, Coinbase stock dived 31% to $50.34.
Looking at the recent trends in the crypto market, there aren’t any signs of a near term turnaround.
Digital currencies have been in free fall. Bitcoin has declined by 34% this year to $31,500, while other coins have tumbled much more. Since November, traders have been fleeing speculative risk assets because the Federal Reserve has shifted to tighter monetary policy. The central bank is raising interest rates and withdrawing liquidity to bring down inflation.
Sentiment for cryptocurrencies has gotten worse this week. A major stablecoin, TerraUSD, which is designed to serve as safer place to store value and maintain a peg to 1 US dollar, plunged by nearly 50% to 51 cents, sparking worries that the selloff may spread to other coins.
Given all the cross currents, it raises the question why top analysts on Wall Street like Goldman didn’t foresee the risks. Coinbase has been one of the worst-performing stocks in the market, with its shares down nearly 80% year-to-date.
Downgrading after such a drop isnt particularly helpful.
Write to Tae Kim at [email protected]
Credit: www.marketwatch.com /