Wall Street has lowered earnings expectations for high-flying fintechs Coinbase and Block, as a chill in the criptocurrency market adds more pain to companies already struggling with surging costs and rapidly rising rates.
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 per cent drop in adjusted profit.
More than three quarters of its market capitalization was lost this year due to the fact that the coinbase has the biggest exposure to volatility.
This is going to be a very difficult 12 to 18 months for Coinbase, said Dan Dolev, senior analyst, Fintech equity research at Mizuho Securities USA.
Block, which changed its name to Square last year to reflect its focus onBlockchain, has lost half of its market value due to the stock market rout this year.
Many companies in the sector have been dragged down by the selloff of cryptocurrencies, with some seeking bankruptcy protection. The largest criptocurrency,Bitcoin, has nearly halved its value in the first seven months of the year.
There is a possibility that there will be double digit headcount reduction at Coinbase at some point because the cost is too high, Dolev said.
According to Credit Suisse analysts, estimates of cuts and competitive pressure are also contributing to the weakness of the Fintech stocks.
The cryptocurrencies sector may be emerging slowly after a bruising selloff, but they still have to deal with regulatory hurdles in the United States, the biggest market for such assets.
On Tuesday, Robinhood Markets Inc reported a 44 per cent drop in second-quarter earnings, a day earlier than expected, and said it would also cut 23 per cent of its workforce.
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.