Coinbase Downgraded to Sell as Earnings Miss and Valuation Concerns Mount

Coinbase (COIN) has been downgraded to a "Sell" rating by Compass Point Securities, with the firm also lowering its year-end price target from $330 to $248. The downgrade follows weaker-than-expected second-quarter earnings, a slowdown in retail participation, and a broader market reassessment of crypto-related equities [1]. Analysts attributed the move to a combination of factors, including rising competition, declining subscription and services revenue, and uncertainty around regulatory reforms in 2025 [1].

The firm noted that Coinbase's "Other S&S revenue," which includes fees from services like Coinbase One, significantly underperformed in Q2 and is expected to remain a drag in Q3. This segment had been seen by many investors as a key long-term growth driver, but its performance has fallen short of expectations [1]. The third-quarter outlook is also weaker, with the midpoint of the company’s forecast 5% below analyst consensus [1].

Compass Point emphasized that Coinbase’s valuation remains stretched despite the recent 18% drop in share price. The stock is currently trading at 44x the annualized EBITDA forecast for Q3 2025, a level the analysts believe is difficult to justify given the headwinds from retail trading, ETF and DeFi competition, and a lack of regulatory clarity [1]. The analysts also expressed skepticism about the likelihood of the CLARITY Act — a proposed crypto regulatory reform — passing in 2025, with expectations shifting to early 2026 [1].

The broader crypto market has also shown signs of stagnation, with Bitcoin and Ethereum struggling to gain traction. Retail investors are increasingly pulling back from "TreasuryCo" stocks, which hold large amounts of crypto on their balance sheets. This trend has been further amplified by shifting capital-raising strategies from companies like Strategic, which has moved away from equity offerings [1].

Compass Point also highlighted concerns over excessive leverage in crypto markets, noting that a deeper sell-off could trigger another wave of forced liquidations. This comes after a July rally that was fueled by aggressive trading activity [1]. The analysts warned that the current valuation premium for Coinbase may not be sustainable, and expect it to compress back toward previous levels unless the company can demonstrate stronger growth and differentiation in a rapidly evolving market [1].

The downgrade reflects a broader cooling in sentiment across the crypto sector, where initial optimism has given way to caution. With regulatory uncertainty persisting and competition intensifying, firms like Coinbase must navigate a challenging environment where profitability and long-term growth are increasingly difficult to achieve [1].

Source:

[1] Coinbase (COIN) Cut to Sell by Compass Point as Crypto Momentum Stalls and Valuation Stretches (https://www.coindesk.com/markets/2025/08/04/coinbase-cut-to-sell-by-compass-point-as-crypto-momentum-stalls-and-valuation-stretches)