Adverse crypto market factors and a flight of talent also played a role in the downgrade.

Simon Cinch, an analyst at Atlantic Equities, has downgraded Coinbase (NASDAQ: COIN) to Neutral from Overweight, and flagged a potential downside of another 37% to the stock price, or $35 per share. Coinbase is currently trading at $52.62 per share. (Investing.com)

The analyst cited a slew of concerns for the downgrade, chiefly market developments that would possibly severely impact Coinbase’s revenue.

Crypto winter may affect Coinbase revenues

“We note that recent cost actions suggest much more challenging fundamentals at Coinbase; volumes and crypto prices have failed to stabilise as hoped; risks of further crypto collapses are rising; crypto prices are testing or violating key support levels; macro is deteriorating at the same time as crypto prices for the first time; and the spread of misinformation may be having more than just a sentiment impact on Coinbase’s business,” Cinch noted.

Net revenue estimates could plunge over 70% in FY23 and FY24 if the market was gripped by a prolonged crypto winter.

The research note also warned of “incremental concerns over the company’s ability to attract talent longer-term, as well as competitive concerns regarding the spread of misinformation over the company’s financial strength and consumer asset protections.”

Talent concerns highlighted by Goldman, too

Late last month, analyst Will Nance at Goldman Sachs (NYSE: GS) downgraded Coinbase from Neutral to Sell assigning a price target of $45.

According to the analyst, Coinbase was faced with the hard choice between equity dilution and a reduction in employee compensations – the latter would, however, likely lead to a flight of talent.

Last month, the crypto exchange, the largest in the US, announced an 18% cut in employee headcount, meaning about 1,100 people would lose their jobs.

“Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market,” CEO Brian Armstrong then wrote to employees. “The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.”

Related Story: Goldman Sachs Downgrades Coinbase To Sell In Another Body Blow To Cryptos