Crypto winter could dampen fintech revenues

Representations of cryptocurrencies in this illustration taken January 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

Aug 3 (Reuters) – Wall Street has cut earnings expectations for once-high-flying fintechs Coinbase ( COIN.O ) and Block ( SQ.N ), as a freeze in the cryptocurrency market adds more pain to the companies already struggling with rising costs and fast-growing prices.

Crypto exchange Coinbase is expected to report an adjusted loss in the second quarter, while Jack Dorsey-led payments company Block is likely to see a 70% drop in adjusted profit.

Coinbase, which has the biggest exposure to crypto volatility, has lost more than three-quarters of its market value this year.

“For Coinbase, this is going to be a very difficult 12 to 18 months,” said Dan Dolev, senior analyst, fintech equity research at Mizuho Securities USA.

Block, which changed its name from Square last year to better reflect its focus on blockchain, has lost more than half of its market value due to the stock market failure this year.

THE CONNECTION

The sale of cryptocurrency has dragged down several companies in the sector, with some even seeking bankruptcy protection. Bitcoin , the largest cryptocurrency, has almost halved in value in the first seven months of the year. read more

“There could be the potential for double-digit headcount (at Coinbase) at some point because the costs are too high,” Dolev said.

Rating cuts and competitive pressure are also contributing to the weakness in fintech stocks, according to Credit Suisse analysts.

The cryptocurrency sector may be slowly emerging from a violent selloff, but it still has to contend with regulatory hurdles in the United States, the largest market for such assets.

Online trading app Robinhood Markets Inc ( HOOD.O ) reported a 44% drop in second-quarter earnings on Tuesday, a day earlier than expected, and said it would also cut 23% of its workforce. read more

BASIC

WALL STREET SENTIMENT

** Coinbase Global – 14 out of 26 brokerages rate the stock “buy” or higher, 10 “hold” and two “sell”; their median PT is $91, down from $100 last month

** Block Inc – 37 out of 50 brokerages rate the stock “buy” or higher, 11 “hold” and two “sell”; their median PT is $117, down from $140 last month

Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Anil D’Silva

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