Coinbase Receives Downgrade to ‘Sell’ as Retail Interest Cools: Compass Point

Analysts at investment bank Compass Point downgraded Coinbase’s stock to “Sell” from “Neutral” on Sunday, flagging increased stablecoin competition and growing investor fatigue as potential headwinds for the crypto exchange in the second half of this year.

Compass analysts lowered their price target for Coinbase shares to $248 from $330 after the San Francisco-based firm posted a weaker-than-expected second-quarter performance last week,—which was marked by a sequential drop in revenue from crypto transactions.

Coinbase notched $764 million in transaction revenue, a 39% drop from the previous quarter. Coinbase has leaned into revenue from subscriptions and services to diversify over the past few years, but that segment pulled in $656 million, a 6% drop quarter-over-quarter as well. 

Coinbase’s stock rose 1% on Monday, as shares changed hands around $319, however, they’ve fallen 15% from $377 since its earnings on Thursday, according to Yahoo Finance. Despite the recent dip, the company’s stock price has rallied 28% year-to-date.

Coinbase’s revenue miss in the second quarter affirmed that its “retail trading business is getting disrupted” by decentralized exchanges and exchange-traded funds, but the decline in subscriptions and services revenue was more disappointing, the analysts said. Investors place a higher premium on revenue from that segment because of recurring fees, they added.

Compass analysts foresee a continuation of the current bill market, but they argued that there’s "limited support for COIN’s valuation” if the crypto market begins to turn lower.

A panoply of crypto treasury firms have debuted this year, and with the premium that some of them trade at relative to their crypto holdings becoming compressed, Compass analysts posited that “retail interest in crypto treasury stocks is beginning to wane.”

Coinbase recorded a $1.5 billion windfall in the second quarter from its investment in publicly traded stablecoin issuer Circle, which is expected to benefit from legislation passed last month. The crypto exchange meanwhile notched $240 million in stablecoin revenue.

As companies like Bank of America, which signaled that they were sidelined until stablecoin legislation is passed, introduce their own products, Compass analysts argued that “increasing stablecoin competition” will weigh on valuations for Coinbase and Circle.

Last month, Compass analysts downgraded Circle’s stock to “Sell,” while lowering the company’s price target to $130 for $205 per share. They believe that new competitors could eat away at USDC’s market share, even if Circle is able to continue growing the token’s market cap.