climbed sharply Wednesday but shares of broker Coinbase Global
were struggling to match the gains in the world’s No. 1 crypto, as the crypto platform was hit with a relatively sobering report from Raymond James, which initiated coverage of the company at the equivalent of a sell rating.
The Raymond James report, written by Patrick O’Shaugnessy, David Farnum and Michael Vinci and published Tuesday, makes the case that the prominent player in crypto exchanges and brokerage will eventually face heightened competition, which will could lead to the shrinking of its current healthy fees charged to customers using its platform.
“Coinbase is currently enjoying substantial momentum,” wrote the Raymond James team, adding in the report that “the vast majority of its revenues currently come from trading commissions and over and over again history has shown that brokerage and exchanges see excess profits competed away unless there is a structural barrier to entry.”
Results from Coinbase, released last month, showed that the U.S.’s largest crypto brokerage earned $771 million, or $3.05 a share, in the first three months of 2021, up from $32 million a year earlier. And total revenue surged to $1.8 billion from $191 million in the prior period.
The popularity of crypto, which ratcheted up in late 2020 and early this year, has been one of the key reasons for growth on Coinbase and other rivals.
Coinbase is one of the most dominant and well-known operators in the crypto trading arena but critics have often made the argument that its dominance will eventually face so-called “fee compression,” as stiffer competition erodes its market share, with other companies aiming to entice prospects to do business on their lower-fee platforms.
On Wednesday, Interactive Brokers Chairman and CEO Thomas Peterffy said, during a Piper Sandler Global Exchange & FinTech Conference, that the brokerage would start offering crypto on its venue before the end of the summer.
Meanwhile, last week, Robinhood Markets, which is planning to make official its plans to go public soon, touted low to zero-transaction fees as one selling point in growing its crypto trading operations.
Coinbase reported some 56 million verified users and 6.1 million monthly active users on its platform, and $223 billion in assets. In a blog back in April, Robinhood’s head of crypto operations Christine Brown said the company had 9.5 million customers trading crypto, compared with 1.7 million in the fourth quarter of 2020.
Kraken, a cryptocurrency exchange with a reported $20 billion valuation, and which is also expected to go public in the future, said it is aiming to increase its market share and focus on individual investors.
Raymond James sets Coinbase’s fair value at $95, compared with its Wednesday level at $225 per share. The researchers don’t set an official price target for Coinbase but note that it could see a 90% drop based on June 7 closing level at $231.45 and a 336% gain, as a bull case.