Crypto winter may temper fintech earnings

© Reuters. FILE PHOTO: Representations of cryptocurrencies in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Manya Saini and Niket Nishant

(Reuters) - Wall Street has lowered earnings expectations for once high-flying fintechs Coinbase (NASDAQ:COIN) and Block, as a chill in the cryptocurrency market adds more pain to the companies already grappling with surging costs and rapidly rising rates.

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

Coinbase, which has the biggest exposure to crypto volatility, has lost more than three quarters of its market capitalization 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 over half of its market value amid the stock market rout this year.

THE CONTEXT

The cryptocurrency selloff has dragged down multiple companies in the sector, with some even seeking bankruptcy protection. Bitcoin, the largest cryptocurrency, has nearly halved in value in the first seven months of the year.

"There could be potential for double digit headcount reduction (at Coinbase) at some point because the cost is too high," Dolev said.

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

The cryptocurrency sector may be slowly emerging from a bruising selloff, but they still have to contend with regulatory hurdles in the United States, the biggest market for such assets.

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

THE FUNDAMENTALS

Company Refinitiv revenue estimates Refinitiv

per-share

profit/loss

estimate

Coinbase $830.5 million (down ~63% y-o-y) ($2.68)

Block $4.35 billion (down ~7% y-o-y) 16 cents

WALL STREET SENTIMENT

** Coinbase Global - 14 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 of 50 brokerages rate the stock "buy" or higher, 11 "hold" and two "sell"; their median PT is $117, down from $140 last month