Wells Fargo Starts Coinbase at Underweight, Sees 15% Downside Risk

By Senad Karaahmetovic

A Wells Fargo analyst initiated research coverage on Coinbase Global (NASDAQ:) at an Underweight rating. Coinbase shares are down over 1% in pre-open Thursday trading.

The price target is set at $57 per share, indicating a downside risk of just over 15% compared to yesterday’s closing price of $67.31. The analyst says Coinbase operates in a “challenged environment” which will continue to impact its operations.

More precisely, the Underweight rating is a result of the analyst’s view that COIN is impacted by several strong headwinds, namely:

1. Retail pricing is likely to decline,
2. Rising competition from Binance and FTX,
3. More restrictive government stance toward crypto, and
4. Macro environment will likely further weaken from here.

“Though we believe in the value of COIN’s platform, we see its early-mover advantages gradually being eroded away as the competition increasingly mimics the COIN ecosystem,” the analyst said in a client note.

Furthermore, the analyst sees risks to a consensus as the “crypto winter” impact remains “significant.”

“We forecast a 56% Y/Y decline in 3Q retail transaction revenue to $451M; we’re below consensus. We’re also below consensus in ’23 as we see macro weakness and a tougher regulatory environment constraining COIN’s volumes/revenue,” the analyst added.

Net-net, the analyst struggles to understand the clear path for Coinbase to become a profitable business on a sustainable basis.

“Regulation in particular will be a challenge for COIN—for example, note the recent discussion coming from the SEC about “cryptos as securities” (e.g., for staked assets). Though COIN is managing through all of these (including by offering products like a subscription model), we don’t see a clear path for the company to reach profitability,” the analyst concluded.

Elsewhere, the analyst also initiated research coverage on Riot Blockchain (NASDAQ:) and Bakkt Holdings (NYSE:) at Equal Weight. Price targets are set at $7 and $2.50 per share, respectively.

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