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Cryptocurrency exchange Coinbase is pushing to NFT. However, the hype around these digital assets seems to be fading.
Michael Nagle / Bloomberg
Non-alternative tokens (NFTs) are the world’s last year as investors saw new types of digital assets (often artwork) change for hundreds of thousands of dollars, if not millions of dollars. Swept.
Coinbase Globalof (Ticker: COIN) Expansion into space seems to be a natural movement.After all, the core business of crypto exchanges is to facilitate trading of other digital assets such as:
Bitcoin
When
ether,
In the process, we will collect the fee.
With its well-known brand and solid customer base, Coinbase is ready to storm OpenSea (a major private NFT exchange) and gain a share of trading for Bored Apes, CryptoPunks, and other cultural icons. Looks like you are.
But is it worth it? It may not be. Mizuho Securities analysts said in a report Tuesday that it could be costly to chase after NFT hype as it diminishes.
According to data from market tracker NonFungible, Coinbase launched its NFT on October 12, last year, just a month after the NFT boom peaked and recorded over $ 400 million in daily sales at the end of August. Invited a customer to the waiting list. ..
From there it went downhill. By the end of March, daily sales were close to $ 30 million. And there has been a recent upward trend — we saw sales of nearly $ 70 million on Monday — there are other signs that the digital collectibles market is chilling.
According to Mizuho’s team led by Dan Dreff, interest in NFTs measured using Google’s search trends peaked in January. Lack of interest in NFTs can undermine Coinbase’s big plans for NFTs, resulting in high spending.
“According to an analysis of Internet searches, interest in NFTs has dropped dramatically from highs earlier this year,” said the Dolev team. “We are questioning the strategic rationale for tracking NFTs, especially as the NFT hype seems to have diminished.”
Mizuho lowered its target price for Coinbase shares from $ 220 to $ 190 on Tuesday, dropping 7% that day to maintain a neutral rating of around $ 178.
Building an NFT business is not a nonsensical feat. Mizuho estimates that Coinbase may need to spend up to $ 300 million to launch the NFT platform in 2022. This contributes to an overall 130% increase in annual operating expenses.
All of this happens in an environment where the wider crypto space is slowing, not just NFTs.
Christopher Brendler, an analyst at investment bank DA Davidson, estimated that Coinbase’s trading volume in the first quarter of this year was down 40% from the previous quarter to a total of $ 314 billion. His estimate, based on exchanged data, is 20% below the current consensus.
There is also a tendency to worry about customer composition. Brendle believes institutional clients are more resilient, while the number of individual clients fell 46% from the previous quarter.
“This combination is very important for earnings, as retailers take about 50 times more than institutional investors,” Blendler said in a report.
But there are still reasons why Coinbase stocks are bullish. DA Davidson values Coinbase at a target price of $ 225 at the time of purchase, and the brokers researched by FactSet overwhelmingly value Coinbase overweight with an average target price of $ 304.
“More than almost every stock covered, Coinbase’s Buy rating has little outlook for the short term,” Brendleer said. “Coinbase is building an outstanding cryptocurrency franchise with unmatched scale, technology and brand, not only increasing consumer adoption in our core trading business, but also increasing non-trading opportunities. It’s becoming attractive. “
Despite recent trends indicating that NFTs are declining, parts of Wall Street remain optimistic about space. Jeffreys analyst Stephanie Wisink predicts that this year’s NFT market sales will reach $ 35 billion, reaching $ 80 billion by 2025.
Barron’s We have previously reported on the value of NFT exchanges to businesses — especially
GameStop (GME). The math repeats.
OpenSea, the largest NFT platform, runs about $ 3 billion in monthly NFT volumes and charges 2.5% for sales. This means that your monthly transaction revenue is $ 75 million or $ 900 million annually.
If Coinbase earns half of OpenSea’s volume at the same pricing, annual revenue would be $ 450 million, according to Needham analyst John Todalo. In a bullish scenario, Coinbase could reach $ 1.3 billion in annual revenue if the volume exceeds the OpenSea level at a 3% rate.
These are a fair amount of money, but they don’t change your business. For reference, Coinbase recorded revenue of about $ 7.4 billion last year. If we can maintain these numbers and work on the $ 1.26 billion NFT business that was fully formed in 2022, Coinbase will raise its revenue in 2022 to $ 8.7 billion.
This means an 18% increase in annual sales, which is less than half.
alphabetof (GOOGL) 2021 Revenue Growth — If you want to use tech giants as a benchmark for successful growth.
Write to Jack Denton at jack.denton@dowjones.com
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