On June 27, Goldman Sachs analysts downgraded Coinbase (COIN) shares to Sell from Neutral. The analysts recommended lowering their price target to $45 from $70.
In the same statement, the brokerage raised Robinhood (HOOD) shares from Sell to Neutral. Both firms make cryptocurrency trading a major aspect of their operations.
“We believe current crypto asset levels and trading volumes imply further degradation in COIN’s revenue base,” Goldman Sachs analyst Will Nance wrote in a note Monday. Coinbase’s revenue is expected to decline 61% in 2022, after a 514% increase in revenues last year as Bitcoin and other cryptocurrency values reached all-time highs.
Goldman also points out that, although Coinbase recently announced an 18% decrease in employees, these layoffs will not be sufficient to put Coinbase’s expenses in line with decreasing revenues.
“We believe further cuts are needed, as the announced cost reduction effort merely brings headcount back to end-1Q22 levels and resulted in COIN moving to the low end of its previous expense guidance,” Nance wrote. “We believe COIN will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up.”
Goldman Sachs says, the recent decrease in cryptocurrency prices, with the entire market capitalization of all cryptocurrencies dropping below $1 trillion in recent days from a record high of about $2.8 trillion last year, would likely have a comparable impact on Coinbase’s top-line profitability.
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