Coinbase stock sinks ahead of earnings and crypto platform could see 65% skid as competition picks up, says analyst

“While Coinbase has been able to rely on its first mover advantage and brand familiarity so far, margins will continue to compress from competition with both ‘CeFi’ brokerages like BlockFi and ‘DeFi’ alternatives like Uniswap,” wrote Matthew Wheeler, global head of market research at Forex.com, referring to traditional centralized financial, or CeFi, and decentralized financial, DeFi, platforms.

Back in early April, Coinbase estimated that its first-quarter profit surged, exceeding its entire performance for 2020, on the back of rabid appetite for the No. 1 and 2 crypto in the world, bitcoin BTCUSD, -11.05% and Ether ETHUSD, -9.84%.

“Bulls are hopeful that these halcyon, high profit margin days can continue for a bit longer, so any signs that profit margins are already falling could lead to a selloff in the stock,” Wheeler wrote.

Investors expect Coinbase to report earnings per share of $3.07 on revenue of $1.814 billion, according to a consensus of analysts estimates polled by FactSet, as of May 12.

Coinbase shares are down over 30% from its intraday peak of $429.54 on its debut on April 14. The company’s stock is down by about 16% from its closing price on its first day of trading on the Nasdaq, bringing its market value to $57.3 billion.

Part of Coinbase’s recent slump has been blamed on the threat of increased competition from the likes of traditional banks and other crypto exchanges offering similar services.

CNBC reported earlier this week that Goldman Sachs GS, +0.87% was seeing activity pick up in a newly created cryptocurrency unit. This comes as Morgan Stanley MS, +1.23% has said that it intends to offer crypto services to its wealthy clients, and other firms appear ready to follow suit.

David Trainer, CEO of New Constructs, an investment research firm, speculated that Coinbase could see its shares fall by 65% from current levels due to new entrants.

“Coinbase is not likely to fulfill the profit expectations baked into the stock’s current valuation of $58 billion due to rising competition in the cryptocurrency trading space, which should reduce the company’s market share and pricing power,” the analysts wrote in a reported dated Tuesday.

MoffettNathanson analyst Lisa Ellis, who maintains a price target for Coinbase at $600, told MarketWatch that Coinbase bears will be looking for any signs that so-called price compression will eat into the exchange and trading platform’s revenues.

“It’s extremely easy to be negative on Coinbase,” she said. However, she said it was likely too early to think that competition would hurt the company’s business soon.

She said lackluster user growth, however, could deliver a bigger hit to sentiment in the company’s stock, at least in the near term.

Last month, Coinbase said it had 56 million verified users on its platform, including 6.1 “monthly transacting users,” or MTUs. Ellis said that the 6.1 million figure relates more to Coinbase’s professional clientele but the MTUs could be damped by PayPal and other venues also offering basic crypto-trading services to average folk.

Oppenheimer’s Owen Lau initiated coverage of Coinbase on Tuesday at outperform, the equivalent of a buy recommendation, and set a price target at $434, based on his view that the company is an “enabler of crypto innovation.”

BTIG analysts Mark Palmer and Andrew Harte, reaffirmed their “buy” rating for Coinbase and held their price target at $500. The BTIG analysts say that Coinbase pessimists have been too narrowly focused on the “company’s retail trading commissions” and not focused enough on the potential for Coinbase to serve institutional investors and hedge funds.

Indeed, back in February, Coinbase’s institutional trading wing handled electric vehicle-maker Tesla’s TSLA, -4.21% $1.5 billion bitcoin investment, according to a report by The Block. The Block also noted that Coinbase has a number of corporate clients that use its platform for crypto purchases, a growing phenomenon as bitcoin prices strengthen.

However, bitcoin values have stalled after hitting a recent record at $64,829.14, with the No. 1 crypto down by about $10,000 since that peak.

Meanwhile, Ether prices were trading above $4,100 and had recently touched a record at $4,382.73, as the crypto known for its smart-contract protocols, gains more traction on the back of growing DeFi platforms and nonfungible tokens, or NFTs, which use Ethereum’s blockchain as a platform.

Growing appetite for dogecoin DOGEUSD, -15.78% has reportedly fueled transaction volume in crypto brokerages but Coinbase doesn’t offer doge on its platform.

Still, investors might looked to see how the company has performed in the face of increased volatility in alternatives to bitcoin, known also as altcoins.

Dogecoin prices have been unwinding steadily since hitting a peak on Saturday near 75 cents, but are still up over 9,500% so far in 2021. Dogecoin was trading hands, at last check, at 44 cents. Bitcoin prices are up 88% so far this year, but down 4% over the past 24 hours. Ether has gained 462% in the year to date.

By comparison, traditional assets are seeing far more muted returns this year. Gold prices GC00, +0.01% were down nearly 4% in 2021 thus far. The Dow Jones Industrial Average DJIA, +1.03% was up 10.5%, the S&P 500 index SPX, +0.90% was up 8.8% so far this year and the Nasdaq Composite Index COMP, +0.19% has gained 1.7% over the same period.

Shares of Coinbase were nearly 5% lower on Wednesday afternoon.