Coinbase (COIN) got downgraded by analysts at Compass Point who questioned whether its valuation was sustainable.
The analysts changed Coinbase’s rating to Sell from Neutral and lowered its price target to $248 from $330 per share. The new price target represents a 21% decline from Friday’s close.
“While we remain constructive on the current crypto cycle, we expect a choppy 3Q alongside weak August/September seasonality and waning retail interest in crypto treasury stocks,” Compass Point analyst Ed Engel wrote on Sunday night.
“As such, we see limited support for COIN’s valuation if crypto markets sell off further,” he noted.
The development comes after the crypto platform’s stock plunged 14% on Friday, its biggest intraday drop since April, after the company’s quarterly earnings report showed that revenue last quarter took a hit from lower trading volume.
Compass Point pointed to Coinbase’s Subscription & Services (S&S) revenue, which came in at $655.8 million versus Wall Street estimates for $715.2 million. S&S includes plans such as Coinbase One, a monthly subscription product that offers no trading fees and other perks
“Investors place a higher premium on these recurring fees, thus disappointing S&S fees have a more pronounced impact on COIN’s valuation,” Engel wrote.
The analyst also pointed out that increasing stablecoin competition will likely put downward pressure on the valuation for Coinbase and its partner, Circle (CRCL).
Read more: Can you buy crypto with a credit card? See the pros and cons.
The issuer of digital tokens backed by the US dollar shares part of its interest income revenue with Coinbase.
Engel and his team also said they believe interest in crypto treasury stocks such as Strategy (MSTR), the largest public holder of bitcoin, is declining, limiting the ability for companies to raise money for more token purchases, essentially crypto’s upside in the near term.
The analyst noted Strategy has recently slowed purchases of bitcoin.
“With Strategy buying $18bn BTC YTD, MSTR’s pivot removes another layer of BTC buying pressure,” Engel said.
Not all analysts are so bearish. The stock has 19 analyst Buy recommendations, 16 Hold, and 5 Sell, according to Bloomberg data.
Bernstein analysts recently dubbed Coinbase a “one-stop Amazon” of crypto services. In a note last week, the analysts reaffirmed an Outperform rating on the stock with a $510 price target.
Instead, the analysts said investors should focus on crypto derivatives and the company’s “everything exchange” vision for the platform.
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