According to Goldman Sachs’ downgrade note on Monday, the ongoing bear market for Coinbase stocks is not going to end anytime soon.
The bank said the sharp decline in bitcoin and other cryptocurrencies should reduce trading volume, which is essential for crypto exchanges like Coinbase to thrive. Goldman Sachs analyst Will Nance downgraded Coinbase to sell from neutral and set a price target of $45 for a potential drop of 23% from current levels.
Shares of Coinbase fell as much as 11% Monday and is 86% below its all-time high as the cryptocurrency has wiped out trillions of dollars in value since Bitcoin’s November peak. Notably, sentiment in the crypto space has been rocked after multiple high-profile stablecoin explosions caused investors to lose billions of dollars, and increased regulation could further eat away at Coinbase’s earnings.
Based on current crypto asset levels and trading volume, Nance estimates that Coinbase’s revenue will be down 61% year over year in 2022.
And while Coinbase announced an 18% workforce reduction earlier this month, according to the release, cost-cutting measures won’t be enough, and more job cuts are likely.
“We believe Coinbase needs to significantly lower its cost base to avoid a liquidity crunch stemming from the drying up of retail activity,” Nance said. The Company’s large stock-based compensation program can result in significant shareholder dilution and/or brain drain as shares become less attractive as a salary to employees.
Competition is also intensifying for Coinbase, which could put significant pressure on trading in the coming months and result in sharply lower fee rates.
“From a valuation perspective, we believe valuation support is limited as Coinbase, with a market cap of ~11.5B, will require higher crypto prices and we anticipate negative balanced EBITDA for the next several years,” Nance said.
Coinbase has had a tough time since going public last year. If Goldman Sachs is right and Coinbase hits its $45 price target, it would mean the stock’s overall loss of nearly 90%.