Morgan Stanley has revised its recommendation for Coinbase, downgrading the stock from equal-weight to underweight while adjusting its price target downward from $258 to $120. The investment bank attributes this decision to weak cryptocurrency trading volumes and a deteriorating revenue outlook, both of which could exert prolonged pressure on Coinbase’s earnings.
Waning Confidence in Earnings Recovery
Michael Cyprys, an analyst at Morgan Stanley, highlighted a decline in confidence regarding the expected earnings recovery. He pointed out that decreased trading activity, softer revenue forecasts, and increased market uncertainty following the Binance-related disruptions have influenced the decision. As a prominent American investment bank, Morgan Stanley has a significant presence in global investment banking and wealth management.
Michael Cyprys noted that confidence in earnings recovery has weakened, with low trading activity and a more fragile revenue outlook posing challenges for Coinbase.
In early trading, Coinbase shares fell by 2.3% to $140.25, exacerbating last week’s 10% loss. While cryptocurrency prices have rebounded, trading volumes haven’t recovered proportionately, maintaining a core risk for exchanges dependent on transaction fees.
Reduced Revenue and EBITDA Projections
The bank drastically reduced its revenue and EBITDA forecasts, cutting the 2027 revenue projection by 28% and the adjusted EBITDA outlook by 47%. For 2028, the revenue forecast was revised downward by 18%, alongside a 25% dip in the adjusted EBITDA estimate. Morgan Stanley now anticipates Coinbase producing $2.4 billion in normalized EBITDA by 2028, which falls approximately 14% short of its 2025 projection.
Valuation measures reflect a more cautious stance, with the bank reducing the company’s EBITDA multiple from 20 to 12. This adjustment signals not only weaker operational projections but also heightened volatility and visibility issues in the crypto markets.
According to the bank’s updated projections, Coinbase’s venture into new business areas may not sufficiently offset weaknesses in its core revenue streams in the near term.
Weak Q3 Results Heighten Pressure
The downgrade follows the release of Coinbase’s disappointing third-quarter results last Thursday. The company reported $1.22 billion in revenue, marking a 35% year-over-year decline and showing minimal change from the previous quarter.
Trading revenue dropped 44% year-over-year to $590 million, with subscription and services revenue slipping 20% to $570 million. Throughout the quarter, the crypto market’s trading volume fell by 10%, and price volatility hit its lowest levels in recent years, indicating that user interest hasn’t fully returned despite price increases.
Lackluster Fourth-Quarter Outlook
Coinbase’s fourth-quarter expectations also fail to suggest a robust recovery. The company disclosed approximately $165 million in trading revenue up to October 25. It projected subscription and service revenues to range between $550 million and $630 million.
Additionally, adjusted expenses are expected to rise above the third quarter’s $975 million, potentially reaching between $1.01 billion and $1.16 billion. For the full year, the company revised its adjusted expense projections to fall between $4.15 billion and $4.30 billion.
