- Coinbase (COIN) reported very weak Q1 results.
- Cryptos are poised to drop much further.
- The Street has soured on both cryptos and COIN stock.
Coinbase (NASDAQ:COIN) recently reported dismal first-quarter results, and the value of cryptocurrencies including Bitcoin (BTC-USD) is likely to sink tremendously going forward, which will be bad for COIN stock.
Meanwhile, despite the recent tumble of COIN stock, the shares’ valuation remains quite steep, and the Street has, for the most part, become quite bearish on cryptos in general and Coinbase in particular.
Given all of these points, I continue to recommend that investors sell Coinbase stock.
| COIN | Coinbase | $67.06 |
Horrible Q1 Results and Crypto’s Lousy Outlook
Coinbase’s Q1 net revenue tumbled 27% year-over-year to $1.17 billion, versus analysts’ average outlook of $1.48 billion. Moreover, the number of the company’s monthly transacting users sank to 9.2 million in Q1 from 11.4 million in the previous quarter.
Finally, its EBITDA (earnings before interest, taxation, depreciation and amortization), excluding certain items, tumbled to $19.7 million last quarter from $1.12 billion during the same period a year earlier.
Over roughly the past year, I’ve theorized that the value of cryptocurrencies would tumble as first America’s federal government and then its central bank removed stimulus from the system. For the most part, that trend has played out as I expected it would, as most cryptos’ values have indeed cratered over the last six to eight months months.
By now, it should be obvious that crypto prices move in tandem with stimulus, and to a lesser extent with stock prices, rather than inflation or worries about the macro economy.
And with the Federal Reserve still in the process of taking away the punch bowl, crypto prices will probably fall much further in the coming months and quarters. Consequently, many crypto traders will become much less active users of Coinbase and/or take their funds out altogether.
The Street Has Soured on Crypto and Coinbase
On May 12, Mizuho slashed its price target on COIN stock to $60 from $135 while keeping a “neutral” rating on the shares. “What we have been saying has become clear to many others: the foundation upon which the business is built is less stable than perceived,” the firm stated.
Moreover, Goldman Sachs cut its rating on COIN stock to “neutral” from “buy.” Among the reasons cited by Goldman Sachs for the downgrade were “a weaker profitability profile and updated estimates due to recent crypto trends and company guidance,” according to The Fly.
On the crypto front, Morgan Stanley on May 10 (very belatedly) pointed out that “The correlation between bitcoin and equity indices has remained high and will continue to do so unless bitcoin becomes widely used as a medium of payment – which looks unlikely to happen soon.” And on May 12, Stifel predicted that Bitcoin “could drop even further to $15K as speculators weigh an environment of increasingly tighter financial conditions and sinking money supply.”
The Street’s pessimism is likely to prevent many institutional and retail investors from putting much money into cryptos in the coming months. As far as valuation is concerned, Coinbase is trading for nearly four times analysts’ average 2022 revenue estimate, which, given the negative outlook of crypto, is probably way too high.
As a result of all of these points, it’s definitely time to sell COIN stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
