As competition tightens, Coinbase’s shares are expected to underperform the market and, as a result, do not deserve a place in investment portfolios, according to Raymond James analysts, CNBC reports.
Analysts anticipate a decline in the company’s profits, the lion’s share of which comes from trading fees.
“We do not see a structural barrier to entry for other participants. We should expect a meaningful decline in margins. Coinbase’s highly aggressive push to expand revenue sources will not compensate for this.”, the analysts said.
Currently, the exchange business is Coinbase’s main source of profits — last year trading fees accounted for 86% of total revenue. As of the first quarter of 2021, the revenue-to-trading-volume ratio fell from 0.67% to 0.56%.
Raymond James views the decline in Coinbase’s stock price (the June 9 close at $224.32 and the first day’s open at $381) as a sign of intensifying competition.
Analysts expect crypto exchanges to face a repeat of the situation in traditional markets—Robinhood’s emergence forced them to cut exchange fees sharply, triggering a wave of mergers and acquisitions.
Earlier, Interactive Brokers announced by the end of summer the ability to trade cryptocurrencies.
In April, Coinbase co-founder and chief executive Brian Armstrong expressed doubt about reductions in trading fees even in the medium term.
In May, Goldman Sachs analysts issued a Buy rating on the stock of the largest Bitcoin exchange in the United States. By their calculations, the target price stands at $306 (as of June 8 trading, quotations closed at $220.66).
Earlier, David Trainer, founder and chief executive of New Constructs, cautioned about a 98% drop in Coinbase’s profitability as competition intensifies. The analyst valued the fair market capitalization of the cryptocurrency exchange at $18.9 billion. Messari researchers pegged this figure at $28 billion.
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