At least one significant Wall Street company is avoiding certain equities with a cryptocurrency connection due to the recent drop in bitcoin prices.
On Monday, analysts at Goldman Sachs cut their stock’s price estimate from $70 to $45 and downgraded Coinbase (COIN) shares from Neutral to Sell.
The company raised its rating on shares of Robinhood (HOOD) from Sell to Neutral in the same statement. The trading of cryptocurrencies is a mainstay of both businesses.
Goldman Sachs analyst Will Nance said in a letter on Monday that “we think current crypto asset values and trade volumes signal a significant decline in COIN’s income base.” Following a 514 percent increase in revenues the previous year as the price of Bitcoin and other cryptocurrencies rocketed to all-time highs, the company anticipates a 61 percent decline in Coinbase’s income in 2022.
Goldman also points out that while Coinbase recently declared it will reduce its workforce by 18 percent, these reductions won’t be sufficient to align Coinbase’s expenses with its declining revenues.
At least one significant Wall Street company is avoiding certain equities with a cryptocurrency connection due to the recent drop in bitcoin prices.
On Monday, analysts at Goldman Sachs cut their stock’s price estimate from $70 to $45 and downgraded Coinbase (COIN) shares from Neutral to Sell.
The company raised its rating on shares of Robinhood (HOOD) from Sell to Neutral in the same statement. The trading of cryptocurrencies is a mainstay of both businesses.
Goldman Sachs analyst Will Nance said in a letter on Monday that “we think current crypto asset values and trade volumes signal a significant decline in COIN’s income base.” Following a 514 percent increase in revenues the previous year as the price of Bitcoin and other cryptocurrencies rocketed to all-time highs, the company anticipates a 61 percent decline in Coinbase’s income in 2022.
Goldman also points out that while Coinbase recently declared it will reduce its workforce by 18 percent, these reductions won’t be sufficient to align Coinbase’s expenses with its declining revenues.
The disclosed cost reduction effort, according to Nance, “merely takes personnel back to end-1Q22 levels and resulted in COIN falling to the low end of its prior expenditure projection.” Therefore, Nance concluded, “We feel more cutbacks are required.” As retail trading activity declines, “we anticipate COIN will need to significantly reduce its cost base to arrest the consequent cash burn.”
The recent decline in cryptocurrency prices, which has seen the market capitalization of all cryptocurrencies fall below $1 trillion from a record high of almost $2.8 trillion last year, will probably have a corresponding effect on Coinbase’s top-line earnings, according to Goldman Sachs.
Additionally, Goldman Sachs is now “incrementally less positive” about Coinbase’s ability to charge consumers greater fees.
These worries follow the company’s recently disclosed intention to combine Coinbase Pro with its entry-level trading platform intended for retail clients with little or no trading background.
“The retail platform for COIN has generally catered to less tech-savvy users looking to buy/sell cryptocurrencies fast and simply. Due to Coinbase Pro’s more sophisticated trading capabilities and tiered maker-taker pricing schedule, which has been promoted to more active traders, COIN has been able to charge a trading cost that is much greater than that of Coinbase Pro “explained Nance. We think merging these platforms will lessen friction caused by switching costs and may result in fee rates lowering.
The revised price estimate from Goldman represents a 28 percent decline from Friday’s closing price. By Friday’s end, shares of Coinbase had lost 77 percent of their value thus far this year.Robinhood upgrade
Goldman upgraded Robinhood in the same message to clients, just two months after the company lowered the stock to Sell.
Following a decline of more than 50% for Robinhood so far this year and roughly 30% since early April, the most recent adjustment is mostly due to valuation.
Since cryptocurrencies accounted for 23% of Robinhood’s transaction-based income as of last year, the firm is likewise subject to swings in cryptocurrency prices.
Shares have dramatically underperformed since we downgraded them, and we now see a more favorable risk-reward ratio, according to Nance.
The post In response to the bitcoin price decline, Goldman Sachs downgrades Coinbase, noting the need for “more cuts” appeared first on NFT News Pro.