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Leading investment bank Goldman Sachs has downgraded Coinbase’s stock rating to sell from neutral and reduced its price target from $70 to $45 in its latest note, CNBC reported June 27.
The downgrade was caused by the bear market, leading to crypto-assets value plummeting to new lows. Coinbase stock saw a 5.7% drop to $59.40 in premarket trading after the report.
Coinbase’s revenue is dependent on the transaction fees it charges its retail users.
But with the trading activity of this group declining massively due to rising inflation and the crypto market downturn, Goldman Sachs predicts that the exchange revenue could be cut by as much as 61%.
This would be a heavy blow for Coinbase as it reported heavy losses in the second quarter of 2022.
Coinbase may need to sack more workers
The Brian Armstrong-led exchange has been trying to cut costs and recently laid off 18% of its workforce, citing declining revenue and current market conditions.
Meanwhile, its effort to diversify its revenue has not been entirely successful. Its recently launched non-fungible token marketplace has seen little sales since its launch.
According to Goldman Sachs, Coinbase will need to reduce its expenditure to stem the resulting cash burn. It added that the company would have to decide between diluting its shareholders or reducing employee compensation to stay afloat.
Other crypto stocks are at risk too
Coinbase stock is not the only crypto-related stock currently facing headwinds. According to Bloomberg, most publicly traded crypto-related companies have seen massive declines in their stock value.
Almost all publicly traded crypto-exposed companies, like Microstrategy, Silvergate, Marathon Digital, Coinbase, and Riot Blockchain, have lost over half of their value this year.
But Wall Street analysts remain optimistic about the future of these companies. About 20 analysts still recommend Coinbase stocks as a buy despite its recent poor performance.
According to an analyst at BTIG, Mark Palmer, who has a price target of $290 for Coinbase,
While we are not at all dismissive of the impact of the current crypto market downturn, we also believe any notion that Coinbase would be unable to survive this latest challenge is misguided in light of the facts on the ground.
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