Goldman Sachs, JPMorgan and others warn investors away from Coinbase until 'crypto winter' ends

Published Wed, Aug 10 20229:26 AM EDT

Several Wall Street analysts are warning investors to stay away from Coinbase until the cryptocurrency exchange operator works through a "crypto winter," among other challenges. Coinbase dropped 5% premarket Wednesday after it lost more than $1 billion in the calendar second quarter, while revenue missed analyst estimates. The platform has been contending with a host of challenges including what's called a "crypto winter" where cryptocurrency prices fall. Coinbase's stock price cratered in the second quarter as Bitcoin tumbled, and cryptocurrency traders exited the platform. The crypto exchange said assets on its platform slid to $96 billion from $256 billion in the prior quarter. For some analysts, the second quarter report served as a warning that traders should hold off on the stock, and wait and see how it steers through a tough crypto market. Goldman Sachs' analyst Will Nance believes valuation support for the stock will remain "somewhat limited" given the company's cash burn. "While we believe management has navigated the turbulence in crypto markets well in terms of building liquidity during the bull market and not taking outsized counterparty risk, we expect shares to underperform as long as retail engagement with crypto remains weak and regulatory uncertainty in the U.S. remains," Nance wrote in a note Wednesday. Nance has a sell rating on the stock, though he raised his 12-month price target to $51 from $45. That still suggests nearly 42% downside for the stock from Tuesday's close. JPMorgan's Kenneth Worthington also believes Coinbase's near-term outlook is "grim." The bank doesn't "see a sudden reversal of near-term trends to materially benefit Coinbase," especially as monthly transacting users (MTUs) are expected to decline further in the third quarter. Worthington has a neutral rating on the stock, and raised the year-end price target slightly to $64 from $61. Meanwhile, Keefe, Bruyette & Woods lowered its rating to underperform from market perform, with a $45 price target, saying that investors should wait for some signs of stabilization in Coinbase's business. "[With] retail trading falling from prior elevated levels, regulation likely to increase, and new competitors continuing to launch into this sector, we remain ... cautious until we feel more comfortable that the company and industry have navigated some of these potholes in the road towards broader adoption," read a Wednesday note from analyst Kyle Voigt. To be sure, other analysts believe that Coinbase remains a buy. Needham's John Todaro said in a note that he expects the stock will remain rangebound "before resuming a general upward trend in 2023 with a modest increase in volatility." Todaro has a buy rating and an $89 price target. "We expect COIN to increase new token listings and launch more products in subscription & services verticals to diversify its revenue stream and see initial adoption in NFTs. Under this scenario, we believe shares should be valued at a 6.5x EV/revenue multiple of our FY 2022 estimate," Todaro wrote. MoffettNathanson's Lisa Ellis echoed the positive outlook, saying in a note that "crypto winters" will be a fact of life for Coinbase. Ellis expects the company has enough cash on hand to weather the current crypto downturn. The firm reiterated an outperform rating and a 12-month price target of $200. "We are bullish on cryptocurrency technology—while still nascent, we believe it is one of the most disruptive technology innovations in decades, with relevance across a wide range of use cases," Ellis wrote. —CNBC's Michael Bloom contributed to this report.