Why Coinbase's NFT Foray Could Prove Costly For Crypto Exchange

Coinbase Global Inc. COIN announced in October it is entering the non-fungible marketplace. An analyst at Mizuho Securities sees the proposed plan as one that could eventually prove costly.

The Coinbase Analyst: Analyst Dan Dolev has a Neutral rating on Coinbase shares and lowered the price target from $190 to $220.

The Coinbase Thesis: The strategic rationale of Coinbase chasing NFTs is questionable, especially in a year in which the crypto exchange is staring at an EBITDA loss of about $500 million, Dolev said.

Additionally, the NFT hype seems to be waning, the analyst said. Internet search analysis showed that interest in NFTs has fallen dramatically from its highs.

"Chasing NFTs as hype dwindles can be costly," the analyst said.

Related Link: Coinbase Q4 Retail Activity Boosted By Shiba Inu's October Rally: Is Robinhood Missing Out?

The analyst estimates Coinbase may spend up to $300 million on NFTs in 2022. This will in part be responsible for a 130% escalation in operating expenses year-over-year, the analyst said.

The incremental spend will go into hiring 6,000 employees, largely technology and development teams, international expansion and platform scaling and reliability, Dolev said, citing the company.

Mizuho said it is adjusting its estimates for Coinbase to reflect the lower-than-expected first-quarter volume and medium-term pressure on average transaction revenue per user, as the company increases its exposure to NFTs.

COIN Price Action: At last check Tuesday at publication, Coinbase shares were sliding 7.61% to $177.06.

Related Link: Coinbase Analysts Laud Strong Q4 Performance, But Wary Of Imminent Regulatory Risk And Trading Volume Outlook

Photo: Courtesy Coinbase