With “crypto winter” carrying on through the long, hot summer, shares in Coinbase (NASDAQ:COIN) have continued to plunge in price. With its latest slide to the low-$50s per share, COIN stock has lost nearly 80% of its value since January.
At first glance, you may think shares are now a bargain. However, there’s a lot to suggest that is not the case. It’s questionable whether the crypto meltdown is on the verge of bottoming out, or if it will continue in the coming months.
Not only that, even if crypto were to bottom out tomorrow, it’s not for certain that would mark the start of a comeback for this crypto trading platform operator. Not only could it be many years before crypto’s popularity (and trading volumes) re-hit 2021 levels. Add in other concerns, and there’s more pointing to a further drop, than a recovery, for this stock.
As Cryptos Keep Tumbling, So Too Does COIN Stock
The broad market sell-off has certainly been a small factor in Coinbase’s continued price decline, but the main driver has been the extended sell-off in cryptocurrencies.
As this continues, so too does the pullback in COIN stock. The drop in crypto prices starting in late 2021 has already had a big impact on its fiscal performance. That’s clear from its most recent quarterly results. During the first quarter of 2022 (Q1 2022), the company reported a 27% year-over-year drop in revenue. In terms of its bottom line, it swung from a $771 million quarterly profit during Q1 2021, to a $430 million loss in Q1 2022.
If that’s how bad it was during Q1, you can imagine how horrendous Q2 results will be. Cryptocurrency prices have taken another serious dive since April. We won’t know for sure until it next reports earnings, yet there are plenty of signs the situation has worsened considerably at Coinbase.
It’s already had to lay off 18% of its workforce. Heavy losses from lower levels of revenue may have also taken a meaningful bite out of its $6.1 billion cash position. More losses (in terms of earnings and its stock price) may lie ahead.
Murky Prospects for COIN, Even if the Market Bottoms Out
Any way you slice it, the situation does not look promising for COIN stock. Shares could continue to slide, no matter what lies ahead for the crypto market. Again, it’s unclear whether a “bottoming out” moment is approaching for the crypto market.
Rising interest rates continue to compel investors to take a “risk-off” approach. That’s bad news for speculative assets like crypto. As I discussed last month, something else could further dampen enthusiasm for the space: increased regulatory scrutiny. A full-on “crypto crackdown” by the U.S. Government could affect trading volume, and in turn, Coinbase’s revenue.
Even if crypto soon bottoms out, and begins to move higher, this may not fully translate into a rebound for the company. The level of trading seen during last year’s boom may not return. Traders who took a hit during this year’s crash may be leery of dabbling in it again.
That’s not to say another boom can’t happen. After all, before the 2021 boom, there was the 2017 boom. It’s just that another boom, if it happens, will likely take several years to take shape.
On top of these murky prospects, there’s something else that does not bode well for the company.
The Verdict on COIN Stock
So, what else could impact Coinbase’s future performance, both as a company, and as a stock? A race to the bottom for crypto transaction fees. A few days back, a rival exchange announced plans to offer zero fee trading for several popular cryptocurrency pairs.
The rise of zero commission stock trading via upstarts like Robinhood (NASDAQ:HOOD) gave way to zero commission trading being offered by established stock brokerage firms. The same thing could begin to happen here with crypto.
While Coinbase would likely find another avenue to generate revenue, it would mark an end to the relatively high fees it currently charges its retail customers. This too could affect its ability to re-hit 2021 levels of revenue ($7.83 billion) and earnings ($3.624 billion).
COIN stock earns an “F” rating in my Portfolio Grader. Avoid it. It’s likely to keep sliding, rather than begin to make a recovery.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.