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The report did not give a formal price target for Coinbase stock but suggested a fair value of $95 per share, down over 50% of its current price.
Raymond James investment banking company gave Coinbase Global Inc (NASDAQ: COIN) stock an “underperform” rating, citing stiff competition as the cause of stock drop. Coinbase stock was, however, trading at $225 up 0.3% after hours, even as the Raymond James report became public.
Authors of the report including James Patrick O’Shaughnessy wrote that the stock will likely underperform in its sector or in the S&P 500 for the next 6-12 months, and should therefore be sold. This is the first bearish rating Coinbase has received, especially from such a big company.
“Coinbase is currently enjoying substantial momentum…the vast majority of its revenues currently come from trading commissions and over and over again history has shown that brokerage and exchange see excess profits competed away unless there is a structural barrier to entry,” wrote the Raymond James team.
Nevertheless, Coinbase reports show Q1 earnings of $771 million ($3.05 per share) owing to their first-mover advantage. This was quite impressive compared to $32 million from the year before. Additionally, their net revenue grew to 1.8 billion from $191 million in the period before, increasing crypto popularity working in their favor.
Coinbase (COIN) Stock Faces Heightened Competition
Recently, the prominent crypto exchange and brokerage platform directly listed on NASDAQ in Mid-April, opening at $381 per share, above the $250 NASDAQ reference price. Thereafter, prices promptly rose to $430 per share and ended the day at $328.
Similar exchanges such as Kraken have voiced intentions to follow in these footsteps, with the aim to increase their dominance in the crypto arena. Kraken has managed to increase its customer base to 9.5 million from 1.7 million in Q4. Another brokerage – Interactive brokers – has said it will start offering crypto before summer ends.
Additionally, rivalry platforms are enticing users with their low transaction fees while Coinbase recently increased theirs in response to what they call “client needs”. These have, however, greatly disadvantaged users trading under $10,000. Robinhood, for instance, is marketing itself under the “zero commission” stand, compelling fee compression among legacy brokers.
In the report, O’Shaughnessy noted that Coinbase stock is likely to follow the pattern of conventional markets facing competition. Should that happen, then stock prices will face a period of consolidation. He added that such events in the traditional financial sector usually lead to mergers to prevent revenues from falling too far down.
The report did not give a formal price target for Coinbase but suggested a fair value of $95 per share, down over 50% of its current price.