Coinbase (COIN) shares tumbled to a record low on Wednesday following a weaker-than-expected earnings report and broader crypto sell-off.
“I’ve never been more bearish on Coinbase than we are today,” Dan Dolev, senior analyst of fintech equity research at Mizuho, told Yahoo Finance Live (video above). “There are two scenarios here: a mild [crypto] winter — which I would put the probability on that at less than 50% — and some sort of crypto ice age. I think if we get to a crypto ice age, the survivability is much more questionable.”
The crypto-trading platform reported first-quarter revenue that fell short of forecasts, a wider-than-estimated loss, and a drop in monthly transacting users to 9.2 million — a figure that has continued to decline in the current quarter.
CEO Brian Armstrong may have compounded the market’s consternation by tweeting about a required filing that Coinbase made that disclosed how the crypto exchange protects assets it acts as custodian for in the event of a bankruptcy.
“There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets,” Armstrong tweeted. “Your funds are safe at Coinbase, just as they’ve always been. We have no risk of bankruptcy; however, we included a new risk factor based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties.”
The company’s numbers and the filing, plus negative sentiment surrounding cryptocurrency volatility and the seeming implosion of a stablecoin called Terra, seem to have triggered a perfect storm to drive Coinbase’s shares lower.
The stock has tumbled more than 80% from a record high in November and is trading at a little more than one-fifth of $250, its reference price set at its direct listing in April 2021.
‘We are a crypto company, crypto is in our DNA’
Dolev thinks that Coinbase’s reliance on crypto exclusively is a problem, arguing that the fight for crypto market share in a low-commission trading business is not a sustainable business model. (He has a buy rating on Robinhood, for example, where clients can trade other assets.)
When asked on the conference call about a potential combination with the likes of Robinhood, Chief Operating Officer Emilie Choi’s answer was emphatic: Coinbase is a crypto company.
“We are a crypto company, crypto is in our DNA,” Choi said. “Everything we do is in service of building the crypto economy and increasing economic freedom. So, we don’t plan to offer traditional securities, unless this somehow would help us massively accelerate crypto adoption.”
There are plenty of analysts who think the current crash is overblown: Twenty-two of them still have buy ratings on the stock, compared to five hold recommendations (Dolev among them) and four sell ratings.
Oppenheimer’s Owen Lau is among those who remain optimistic over the longer term.
“Despite macro challenges including inflation and supply chain constraints likely putting pressure on COIN near term, fundamentally: 1) crypto adoptions continue; 2) COIN has strong balance sheet and is able to weather the storm; and 3) COIN continues to diversify, which makes COIN an attractive long-term investment,” he wrote in a note after Coinbase reported earnings.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshyman, and read her other stories.
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