stock finally hit bottom?
Investors in the crypto exchange have been riding a slide down for months, but it may not let up in the near-term.
The shares have slumped 46% in 2022 and lost almost two-thirds of their value since the company went public a year ago.
At least one analyst is getting more bearish on the near-term outlook.
JPMorgan Chase analyst Kenneth Worthington cut his price target on the stock to $ 258 from $ 296 last week. He cut his estimates for first-quarter earnings per share (EPS) to a 27-cent loss from a 12-cent loss. And he slashed his estimates for full-year EPS to an 84-cent loss from a $ 1.23 profit.
A slowdown in crypto trading volumes has pressured Coinbase’s top and bottom lines. But Worthington sees more trouble ahead; lower crypto prices and a larger fall in volumes than previously expected prompted him to cut his estimates.
Coinbase reports earnings on May 10. The consensus estimate for first-quarter EPS is a one-cent profit. If Worthington is right, the market may be overestimating earnings sharply. The stock would likely react quite negatively if Coinbase swings to a wide loss, rather than eking out a tiny profit.
The stock remains heavily supported by Wall Street. Analysts at 16 of 21 brokerages surveyed by Factset rate Coinbase a Buy, with an average target price of $ 270. That implies gains of more than 100% from recent prices around $ 133.
Wall Street generally expects Coinbase to turn a profit this year, with a consensus 2022 EPS of 17 cents.
Yet crypto volumes continued to be weak in the second quarter, according to Worthington. And he argues that Coinbase may need some new catalysts to rekindle demand for the stock.
“The crypto markets are in need of some excitement,” he said, to fuel higher trading volumes and prices for tokens.
One potential catalyst might be an upgrade of the Ethereum blockchain network, he noted. The network is on track for an overhaul that’s expected to sharply reduce user fees and ramp up transaction volume. Yet progress on that front has been slow, with delays pushing back the expected date of the upgrade into the second half of 2022.
Meanwhile, Coinbase’s foray into nonfungible tokens (NFTs) has been met with a muted response.
NFTs are typically pieces of digital art, music, or video clips that grant the holder some ownership rights. The market for NFTs soared in 2021. Coinbase launched a marketplace for trading NFTs last week to a group of waitlisted customers.
Yet building a substantial revenue stream from NFTs will take time and money. Mizuho analyst Dan Dolev estimates Coinbase’s annual operating expenses will climb 130% in 2022, with up to $ 300 million in development costs for NFTs. Dolev has questioned the strategic rationale of Coinbase getting into NFT market, especially as interest in the assets seems to be waning. He has a Hold rating on the stock.
Despite cutting his price target and earning estimates, Worthington maintained his Overweight rating.
Write to Jack Denton at firstname.lastname@example.org