Coinbase stock plunges 30%, hurt by broad crypto slump. But is it time to bet on a recovery?

Posted: 11 May 2022 5:20 pm

Coinbase reported lower revenue that missed estimates, a net loss and a drop in monthly transaction members. Charts say sell but analysts’ target price signals upside.

Coinbase (COIN) shares tumbled more than 30% after the cryptocurrency exchange reported its first quarterly net loss as a public company and warned of continued decline in transaction volume.
The company’s disappointing financial results further fueled the selloff in the company caught between the crypto market rout and the bear market that has stricken technology stocks.
“The softness that we saw towards the tail end of Q1 has continued into April with crypto market cap and volatility both down compared to Q1,” CFO Alesia Haas said during the company’s earnings call with analysts Tuesday. Still, the company is maintaining its 2022 outlook.
With the stock down 86% since its all-time high in November, some may see value in buying the stock. Technical indicators don’t agree. Still, the average analyst target price for the stock shows potential upside for those willing to ride out the downturn over the next year. We’ll discuss that later. But first, let’s get a rundown of the financial results.

Revenue dropped 27%

Revenue in the first quarter shrank to $1.17 billion, missing the average analyst estimate of $1.48 billion as transaction revenue tumbled by more than half.
Coinbase reported a net loss of $1.98 a share for the quarter, disappointing analysts, who on average, predicted the company would post earnings of $0.17 a share, according to the Yahoo Finance website.
Monthly transacting users or MTU fell to 9.2 million, trailing the 9.5 million average of analyst estimate reported by Bloomberg.

Coinbase outlook

The company’s CFO said its April MTU average is around 8.9 million users and its trading volume was about $74 billion. Volatility was at its lowest level since mid-2020 and that’s not helping the exchange’s prospects.
“We may earn a profit when revenues are high, and we may lose money when revenues are low, but our goal is to roughly operate the company at break even, smoothed out over time, for the time being,” the company said in its shareholder letter. “We are looking for long-term investors who believe in our mission and will hold through price cycles.”
Coinbase is focusing on product development during times of volatility. That includes the beta launch of Coinbase NFT, growth in adoption of Coinbase Wallet and the addition of Cardano staking. The company also said it hired over 1,200 full-time employees.
Adding Cardano staking to Coinbase was likely the reason it had 5.8 million users in yield generating products at the end of the first quarter. That’s a 2.2 million user increase from the previous quarter.

Is it time to buy or sell Coinbase stock?

The technical analysis by TradingView is showing strong sell signals, with both the momentum, MACD level, ultimate oscillator and all the moving averages it tracks supporting that view.
While Goldman Sachs downgraded the stock to neutral, JMP Securities and Needham maintained their recommendation. Overall, the average price target of 22 analysts tracked by Yahoo Finance calls for $263.82, representing a huge upside from its current price of $50.85. Seventeen of the 23 analysts who closely watch the stock have a strong buy or buy rating.

Bankruptcy risks

Users flagged the risk of bankruptcy cited in the company’s latest 10-Q filing with the Securities and Exchange Commission.
“Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors,” the company said in the filing.
Users viewed that to mean the Coinbase platform could be at a higher risk, in case the company bankrupts, than if you held them in your own crypto wallet.
Coinbase CEO Armstrong was quick to rule out the company’s risk of bankruptcy in a tweet. He said the inclusion of such risk in the filing as a new risk factor was “based on an SEC requirement called SAB 121, which is a newly required disclosure for public companies that hold crypto assets for third parties.”
Whether that scares new customers remains to be seen.

Interested in cryptocurrency? Learn more about the basics with our beginner’s guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi.

Kliment Dukovski doesn’t own COIN shares as of the publishing date.

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