Goldman Sachs downgrades Coinbase as crypto prices falls

Yahoo Finance Live’s Julie Hyman and Brian Sozzi discuss Coinbase after Goldman Sachs downgrades its shares.

Video transcript

- Coinbase receiving a downgrade to sell over at Goldman Sachs as crypto activity continues to be under pressure. I like that Goldman finally stepped up here and then downgraded this. I mean, it's been a challenging year for Coinbase. Shares down I believe over 70% year to date. Two concerning things from this note by analyst Will Nance over at Goldman. One, he's concerned about the company's I think cash position as growing concern on the street as it pertains to Coinbase, and number two, suggests that there might be more layoffs coming here to Coinbase because its revenue looks to be falling off the map.

- Yeah. This is what we've continued to hear about in terms of some of the cost reductions to their spend base. And they believe that they face a difficult choice between shareholder dilution and significant reductions and effective employee compensation. It's already an extremely kind of embattled environment within tech to retain the top talent, but then ensuring that you can probably compensate them at a time period where your company and your operations are seeing a downturn in the number of new owners of cryptoassets or in the number of different types of assets that are actually seeing some returns because you have this on your balance sheet as well. And so you're getting hit on both ends there.

- Yeah. I mean, it seems pretty simple to say they can't recover until crypto prices go up. But Goldman is saying that. They're saying higher revenues in the near term would require higher crypto prices and volatility. Yes, that would make sense. But the flip side of this call is also interesting. They're upgrading shares of Robinhood at the same time that they're downgrading these Coinbase shares. And they're upgrading them just to neutral from sell. $9.50 is the price target on this one. They say fundamentals here are still very weak.

However, the shares are trading at about a 6 and 1/2 billion market cap versus the cash position. About $6.2 billion dollars. Tangible book value of $7 billion. In other words, with Robinhood, the judgment is the shares have fallen too much. With Coinbase, it's maybe they have a little further to go.

- Both of these companies, you get the sense the next six months will be absolutely brutal in terms of sales, earnings. And you have-- but, look, going back to this Coinbase, I think what Goldman mentioned here, they're saying we believe Coinbase will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up. And it's not just Coinbase. And it's not just Robinhood. It's like all these crypto platforms. And we come back to this debate. When do the mergers start happening? When do you start coming together and try to gain economies of scale in this industry? I'm not seeing anybody talk about this yet.

- Well, those mergers would probably bring even more of the cost reductions. We know that. It would just be a trimming or a streamlining of the operations. And then how much overlap do you already have between two of those customers, a customer profile on Robinhood versus one that's purely on Coinbase and using perhaps some of their custodial services for a cold storage or hard storage perhaps or hot, rather, storage? But I think and Robinhood, for them, they've already made a lot of those cuts too. They made those in April. And so some of the most recent ones, BlockFi, Coinbase, FTX I believe was the other one, we've just started to see those really roll in in the acceleration of this crypto downturn.

- I think the other thing if you're talking about potential M&A that's the big overhang is regulation because these companies are already in many cases under scrutiny. The whole industry is under scrutiny. And so if they were to team up, what then would the SEC, would the FTC have to say about that? I don't know that they want to wade into that at the same time that they're-- I don't know.

- Another good shoutout--

- And I would imagine that would be another issue.

- Real quick to a good piece from our crypto reporter David Hollerith now on the website yahoofinance.com looking at Binance, some activity they might have going on as well. So please do check it out.

- Yeah. And we talked to CZ of Binance last week, which was a very interesting conversation.