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American cryptocurrency exchange Coinbase has seen its shares fall in the pre-market following the downgrade call by analysts from the investment banking giant, Goldman Sachs Group.
Citing a number of reasons, the analysts downgraded Coinbase stock to sell from buy, with a revised price target of $45 from $75. The downgrade shook the trading platform’s investors who now seem to be dumping the coin as shown by the 5.39% plunge to $59.33 in the Pre-market. COIN closed Friday’s trading at $62.71 after a roughly 9% growth in the past week.
According to Goldman analysts, there is an expectation that the declining prices in the broader digital currency ecosystem are bound to stir a “further degradation” in the revenue base of the company. Coinbase Global Inc (NASDAQ: COIN) has always maintained the fact that periods of market growth are often accompanied by high trading volumes which are generally absent when there is a negative price trend.
The Goldman Sachs (NYSE: GS) analysts are forecasting breakeven to negative adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) – a popular measure of a company’s financial performance – over the next few years.
It is no news that Coinbase’s meteoric rise has been battle-tested since it made its debut on the Nasdaq Global Select Market. With plummeting share prices, rating agencies are gradually losing their trust in the long-term viability of the trading platform’s model. Besides Goldman achs, Moody’s has also downgraded Coinbase’s Senior Unsecured Notes.
Moody’s pushed down the grading for the company’s Corporate Family Rating (CFR) from a Ba2 to a Ba3, and it guaranteed senior unsecured notes to Ba2 from Ba1.
Goldman Sachs Projects a Slim Competitive Outlook for Coinbase Global
The overall move by the Brian Armstrong-led firm to cut 1,100 staff or 18% of its total workforce will not go far enough in helping the company maintain a very good competitive advantage amidst this tough economic climate.
The Goldman Sachs analysts shared their conclusion about their current outlook for Coinbase through the Research note published on Monday;
“Lastly, we are incrementally more bearish on the competitive environment and the outlook for fee rate compression given the announced merging of the Coinbase and Coinbase Pro platforms, which has the potential to reduce the switching costs and make lower pricing more easily available to its users.”
While Coinbase is not the only distressed crypto company as BlockFi and Celsius are in more steep waters, only the exchange platform has an obligation to public shareholders, thus making it more in the limelight.