Coinbase Stock Continues to Fall as 'Extreme Drop' in Crypto Prices Prompts JP Morgan to Downgrade

Coinbase Stock Continues to Fall as ‘Extreme Drop’ in Crypto Prices Prompts JP Morgan to Downgrade

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Shares of Coinbase Global Inc. were expected to extend their decline on Tuesday after a JP Morgan analyst dropped its bullish call following an “extreme decline” in cryptocurrency prices.

“While we continue to believe in cryptocurrency markets and blockchain technology, the extreme price drop in cryptocurrency markets in 2Q22 combined with Coinbase’s COIN,
-11.41%
the ramp-up in investments would not only appear to prevent it from generating profits in the near future, but also from reaching its annual loss cap of $500 million in annual EBITDA [earnings before interest, taxes, depreciation, and amortization]JP Morgan’s Kenneth Worthington wrote in a note to clients on Tuesday.

It went from overweight to neutral on shares of Coinbase, which lost more than 5% in premarket trading after losing more than 11% in Monday’s session. The stock is down nearly 80% so far this year as crypto prices have fallen and interest in crypto trading has waned.

Crypto prices fell during the second quarter, but came under particular pressure in recent days, with both bitcoin BTCUSD,
-5.76%
and ethereum ETHUSD,
-5.76%
down more than 20% since the start of the weekend. Learn more about falling crypto prices.

Read: After petition for leadership changes, Coinbase CEO tells workers to quit if they don’t believe in top leaders

“Since Coinbase generates most of its revenue base on cryptocurrency token price value (trading, staking, custody) and much of the rest based on sentiment (velocity, gain, borrowing) , the downturn is likely to materially negatively impact Coinbase’s revenue,” Worthington wrote.

He estimates that Coinbase volumes are down more than 30% in the current quarter after dropping 40% in the March quarter. “Ameritrade data from 1999 to 2006 suggests that a recovery in activity levels could take many years,” he added.

Worthington notes that while Coinbase appears to have frozen hiring in response to tough market conditions, the company may need to do more to cut spending.

“Growing is easier than shrinking, and mgmt./Coinbase risks damaging brand and reputation anyway,” he wrote.

“I thought it was a bad joke”: they gave up other job offers to work for Coinbase and are now unemployed

Moreover, he sees signs of competitive pressure on the company.

“Against this backdrop of a more challenging environment, we note that FTX overtook Coinbase in terms of crypto activity levels in May, and FTX activity continued to overtake Coinbase in June,” Worthington said in its note. research.

He cut his price target to $68 from $171 on Coinbase shares, but acknowledged “the potential for further downside to stocks if cryptocurrency markets do not stabilize and management does not announce more precise measurements to reduce the cost base”.

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