Analyst advised to sell Coinbase shares. Is the cryptorally coming to an end?

Compass analyst downgraded the shares of cryptocurrency exchange Coinbase and now advises to sell them and expects the price to fall by more than 20%. Compass is concerned about the company's mixed report for the second quarter, which showed a decline in the main source of revenue, as well as the volatility of the crypto market and increased competition. On Monday, Coinbase received a target price downgrade from another analyst, but a third, on the contrary, reiterated a buy recommendation, seeing upside potential of another third. In general, Wall Street's opinions on cryptocurrency exchange shares were split almost in half.

Compass investment firm analyst Ed Engel downgraded Coinbase's stock from Neutral to Sell and lowered his target price from $330 to $248 per share, reports CNBC. Engel's new target suggests that the cryptocurrency exchange's stock price will fall more than 21% from its close on Friday, August 1.

Compass downgraded Coinbase after a mixed report for the second quarter. While earnings per share beat forecasts, revenue came in below expectations, and transaction yield - a key metric for the business - was particularly weak, CNBC noted. According to the analyst, such results may signal the imminent weakening of Coinbase's stock rally.

"The dynamics of the second and third quarters confirm: Coinbase's profitability is weakening despite the ongoing rally in the crypto market," Engel said in a CNBC statement. - If the crypto market goes down, Coinbase's current valuation is unlikely to have a strong case." Coinbase shares are trading at a price-to-earnings ratio of 44: that's almost double the average for the S&P 500 (23), CNBC clarified, citing FactSet data.

The Compass analyst also attributed the downgrade to the possible cheapening of cryptocurrencies. "Despite our positive view on the current cryptocurrency cycle, we expect volatility in the third quarter due to seasonal weakness in August and September, as well as a decline in retail investor interest in crypto stocks," Engel said in a note cited by CNBC.

Among additional risks, the analyst named increased competition among stablecoins - digital assets pegged to the dollar - as well as high debt loads in the crypto sector, a likely delay in the passage of the CLARITY Act, which defines the legal status of digital assets, and Coinbase lagging behind competitors like Robinhood and Kraken in the

Despite Compass' pessimism, Coinbase shares rose nearly 3% at one point to $324 in Aug. 4 trading, but then the pace slowed to about +1% . Since the beginning of the year, the company's market value is up 28%. By comparison, the main U.S. stock index, the S&P 500, has added four times less over the same periodin the same time period.  

On Monday, another analyst firm, Keefe, Bruyette & Woods, reports Investing.com, lowered its target price on Coinbase shares amid a weak quarterly report. The analysts lowered the target from $355 to $335 (up 6.5% from the last close) while maintaining a Market Perform rating. Analysts at Keefe, Bruyette & Woods attributed the decline in Coinbase's revenue to falling retail volumes and a decline in passive income from users' cryptocurrency storage (staking). They also noted a weak outlook for subscription revenue and an expected increase in expenses in the third quarter amid stronger investment in a challenging macro and regulatory environment.

Benchmark analyst Mark Palmer is more optimistic about the situation: he reiterated a buy recommendation on Coinbase shares, and left his target price at $421 (one-third above the last closing price). According to Palmer, Coinbase's weak second quarter is a temporary hardship as the company has a strategic competitive advantage in the rapidly growing digital asset sector. Palmer cited a revenue sharing agreement with USDC's stackablecoin issuer, Circle, as a key driver of further growth in the cryptocurrency exchange's stock, especially relevant after the passage ofthe GENIUS Act to regulate stackablecoins. He also noted Coinbase's progress in institutional services, derivatives, and the cryptocurrency-as-a-service model, which could intensify after the CLARITY Act. The company's competitive position is strengthened by the development of a "super application" with the integration of various crypto services and support for decentralized exchanges, and the growth of transaction revenue in July confirms the recovery of activity and the potential for further growth, the analyst believes.

A total of 38 analysts have rated Coinbase assigned shares: 16 of them recommend Buy (Buy and Overweight), 18 advise Hold, and four recommend Sell. The consensus target price of $367.8 suggests the company's stock is up another 17% from its August 1 close.

This article was AI-translated and verified by a human editor