The crypto ecosystem might only barely be a decade-old, but it has already developed very defined cycles. There’s the bull market – broadly speaking this has so far happened following each halving of bitcoin’s block rewards, following which, coins’ prices across the board soar to improbable heights. That, however, is then followed by a long, depressing bear market – what has been given the term “crypto winter.” And we appear to be in the midst of one right now. That has an acute effect on the activity in the ecosystem and that in turn impacts the companies operating in the space.
The crypto market cap presently stands below ~$1 trillion, far off 2021’s heights of ~$2.8 trillion, and as such, trading volumes across the space have been depressed compared to levels seen during last year’s bull market.
Now, due to the ongoing decline in crypto prices and the resulting lowered activity, Goldman Sachs analyst Will Nance has pinpointed two names which have already suffered at the hand of the changing market dynamics but are about to further feel the impact of the long, harsh crypto winter.
So, let’s take a look why Goldman Sachs heeds caution on these two names and at the same time, using the TipRanks database, we can also gauge the rest of the Street’s sentiment.
Coinbase Global (COIN)
As an indication of the shift from the bull market to the current bear conditions, Coinbase might just be the perfect example. The leading crypto exchange has been around since 2012, when bitcoin was still the preserve of a very small fanbase, and nowhere near its current status as “digital gold.” The company quickly established itself as the largest cryptocurrency exchange in the United States by trading volume and the go-to platform for anyone interested in this new-fangled industry. When Coinbase became the first crypto exchange to go public in April 2021 it did so to much fanfare, and signaled crypto’s entry to the mainstream.
But times have changed since then, to such an extent that was painfully evident in Coinbase’s latest quarterly results – for 1Q22.
Revenue dropped by 27% year-over-year to $1.17 billion, while also missing the $1.48 billion in sales the Street expected. The company posted a net loss of $430 million, delivering EPS of -1.98, far off the $0.08 per share the analysts predicted.
Quarterly trading volume of $309 billion came in far below the $547 billion seen in 4Q21 and amounted to the lowest level of the past five quarters. Monthly transacting users (MTUs) also declined by 19% sequentially.
The abysmal performance has been reflected in the share price action. Coinbase stock has shed a huge 79% of its value since the turn of the year. With such a pullback, could there be an opportunity here for investors? Nope, says Goldman’s Will Nance, who sees more trouble ahead.
“We believe current crypto asset levels and trading volumes imply further degradation in COIN’s revenue base, which we see falling ~61% YoY in 2022, and ~73% in the back half of the year,” the analyst opined. “While COIN recently announced a significant restructuring, laying off 18% of its workforce, we believe further cuts are needed, as the announced cost reduction effort merely brings headcount back to end-1Q22 levels and resulted in COIN moving to the low end of its previous expense guidance.”
The result of Nance’s assessment is a downgrade – from Neutral to Sell, while the price target is also reduced – from $70 to $45. As such, Nance thinks the shares have further downside of ~15% from current levels. (To watch Nance’s track record, click here)
Most, however, disagree with Nance’s stance; while 4 analysts sit on the fence and 2 others back the Goldman analyst’s negative take, with 14 Buys, the stock claims a Moderate Buy consensus rating. Moreover, the average price target remains a bullish one; at $131.79, the figure makes room for one-year gains of 148%. (See Coinbase stock forecast on TipRanks)
Robinhood Markets (HOOD)
The next stock we’ll look at is not a pure crypto play but is nevertheless heavily associated with the space. Robinhood is also a trading platform, but on top of cryptocurrencies, it also allows for the trading of stocks and ETFs. Its USP is that the trades are commission free, and its user-friendly mobile app has attracted millennials and Gen Z users to its platform. Part of Robinhood’s appeal is reflected in its name, as the company was founded in 2013 with a mission to democratize investing and provide easy access to the financial markets.
With the onset of the pandemic in early 2020, Robinhood saw huge growth, and driven by stay-at-home mandates and stimulus checks, users flocked to the platform. But like so many others, that growth has been impossible to sustain in a post-pandemic world amidst the tightening of consumers’ wallets.
This was reflected in the Q1 results, released at the end of April. Revenue hit $299 million, some distance short of the $355.8 million expected by Wall Street. EPS of -$0.45 missed the -$0.36 consensus estimate too.
Transaction-based revenues fell by 48% to $218 million vs. the $420 million seen in the same period last year, while cryptocurrencies declined to $54 million, a 39% drop from 1Q21’s $88 million.
Robinhood also went public last year and reflecting the business’s downturn, the shares have also endured a torrid time; since the debut, they have contracted by 76%.
Goldman’s Will Nance covers HOOD too, and believes the current difficult operating environment poses many challenges.
“Fundamentals are still very weak for HOOD, in our view, as continued declines in retail trading risk appetite have weighed on active users and margin balances,” the analyst explained. “Longer term, we believe HOOD needs to see progress on more recurring revenue streams and a return to user growth and engagement levels for shares to outperform.”
“That said,” Nance went on to add, “while we don’t see this occurring near term, a combination of valuation support and a significant interest rate tailwind over the coming quarters are enough to move us to a Neutral rating.”
That is an upgrade on the prior Sell rating, although the price target is lowered from $11.5 to $9.5, leaving room for modest upside of 5% over the coming months.
Rating wise, most of Nance’s colleagues are on the same page; 4 analysts say Buy, 3 implore to Sell, but with 5 additional Holds, the stock claims a Hold consensus rating. However, most are more upbeat where the share price is concerned; the forecast calls for 12-month gains of ~36%, considering the average target clocks in at $12.28. (See Robinhood stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.