1. Why did Morgan Stanley downgrade Coinbase?
Morgan Stanley downgraded Coinbase (COIN) to underweight from equalweight on Monday, November 2, and cut its price target by 53%, to $120 from $258. Analyst Michael Cyprys said weak crypto trading, a softer revenue outlook and doubts about an earnings recovery lie behind the move, which also brought sharply lower earnings forecasts through 2028.
In a note issued the same day, Cyprys wrote that confidence in the earnings recovery has deteriorated. The wording captures the core of the call: the bank no longer expects a quick rebound in the exchange's profits, and it sees the pressure on its business lasting for years instead of quarters.
Cyprys also pointed to uncertainty following the recent hack at Binance, a rival exchange, as a factor weighing on the outlook. The downgrade moves Morgan Stanley from a neutral stance to a negative one, and the price target now sits below the level at which the shares were trading, which was about $140 at the time of the note.
The shares fell 2.3% to $140.25 in early trading on Monday. That followed a drop of 10% the previous week, so the stock had already been under pressure before the downgrade arrived.
2. What does an underweight rating mean?
An underweight rating is a recommendation to hold fewer shares of a stock than its weighting in a benchmark index or portfolio would suggest. It signals that the analyst expects the stock to perform worse than comparable companies. Equalweight, the previous rating, signals an expectation of average performance.
Moving down a notch from equalweight to underweight is therefore a meaningful change in tone. It is not simply a trim to the price target; it states that investors should favor other holdings over this one. Price targets express the analyst's estimate of where the shares should trade over a set period, and a cut of 53% shows how far the bank has lowered its view of the company's value.
Brokerage research is only one input among many, and analysts often disagree. Even so, a downgrade from a large investment bank can influence trading, because many institutional investors consider such notes when they decide how much exposure to hold.
Investors also read the timing of rating changes. A downgrade issued a few days after an earnings report suggests the analyst has had time to absorb the guidance and rebuild the financial model, and the size of the revisions here indicates that the model changed substantially rather than at the margins.
3. How weak was Coinbase's third-quarter report?
The downgrade follows Coinbase's third-quarter report, which was released the previous Thursday. Revenue was $1.22 billion, down 35% from the same quarter a year earlier and roughly flat from the quarter before.
The two main revenue lines both declined. Transaction revenue, the fees earned when customers trade, fell 44% to $590 million. Subscription and services revenue, which includes income from products beyond trading, fell 20% to $570 million.
The drop in transaction revenue reflects how dependent exchanges are on trading activity. Coinbase earns most of its fees when customers buy and sell, so lower activity feeds directly into results. The market backdrop in the quarter was unfavorable for this model: crypto market trading volume fell 10% during the period, and price volatility reached multiyear lows. Volatility tends to draw traders into the market, so when prices move within a narrow range, activity declines.
Crypto markets have had a difficult year, with sharp price swings and episodes of selling that damaged sentiment. A notable point in the analysis is that trading stayed subdued even after prices recovered, which hurts platforms that rely on transaction fees. A price rebound alone, in other words, has not restored the volume of trading that exchanges need.
Revenue that was roughly flat from the previous quarter also matters. A year-over-year decline of 35% could partly reflect a strong comparison period, but flat sequential revenue shows that the business did not gain ground during the quarter, even with prices recovering. That is the pattern the analyst appears to be pointing to when he speaks of a weakening case for a recovery.
4. What is the outlook for the fourth quarter?
Coinbase's guidance for the fourth quarter showed little sign of a sharp rebound. Transaction revenue through October 25 was about $165 million, a figure that gives an early read on how the quarter has started.
The company forecast subscription and services revenue of $550 million to $630 million for the quarter. It also guided adjusted expenses to $1.01 billion to $1.16 billion, up from $975 million in the third quarter.
Higher expected spending alongside flat-to-weaker revenue squeezes profit. For the full year, Coinbase lowered its adjusted expense forecast to a range of $4.15 billion to $4.30 billion, which shows some cost restraint, but the fourth-quarter range still implies expenses growing from the previous quarter's level.
Analysts watching the company have to weigh whether costs can be managed if trading volumes remain low. The bank's note suggests it is not optimistic on that point, and the guidance gave it limited evidence to the contrary.
The fourth-quarter figures can be read as a snapshot rather than a forecast. Transaction revenue of about $165 million through October 25 covers only part of the quarter, so the final number depends on trading in the remaining weeks. Still, an early-quarter figure that is well below the third-quarter total for the same line suggests that the company did not start the period with strong momentum.
5. How much did Morgan Stanley cut its forecasts?
The estimate changes are large. Morgan Stanley reduced its 2027 revenue forecast for Coinbase by 28% and its adjusted EBITDA estimate for that year by 47%. For 2028, it lowered revenue estimates by 18% and adjusted EBITDA estimates by 25%.
EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, is a widely used gauge of operating profitability. A 47% reduction in the 2027 estimate is much bigger than the 28% cut to revenue, which shows that the analyst expects costs to absorb a larger share of whatever revenue the company earns.
The bank now projects about $2.4 billion in normalized EBITDA by 2028. That is roughly 14% below the level recorded in 2025, even though Coinbase has expanded into new businesses. In effect, the forecast says that the new lines of business are not expected to make up for weaker trading income within the period.
Morgan Stanley also lowered the multiple it applies to EBITDA when valuing the stock, to 12 times from 20 times. A valuation multiple reflects how much investors are willing to pay for each dollar of earnings. Lowering it means the analyst sees less growth ahead and applies a more cautious price to the company's profits. The combination of lower earnings estimates and a lower multiple explains much of the 53% reduction in the price target.
Normalized EBITDA is a measure that strips out unusual items to show what the business would earn in typical conditions. By pointing to a figure below the 2025 level even after new businesses are included, the bank is saying that its baseline for the company's earning power is lower than it was a year ago, which is the opposite of the growth path many investors had assumed for the stock.
6. What does the call mean for crypto exchanges more broadly?
The note is specific to Coinbase, but the conditions it describes apply across the industry. Exchanges that depend on trading fees are exposed to swings in volume, and a prolonged period of low volatility can reduce revenue even when asset prices are stable or rising.
Coinbase has been building revenue streams that do not depend as directly on trading, and its subscription and services line is part of that effort. The third-quarter figures show that this segment is not immune to pressure either, since it declined 20% from a year earlier. For investors, that raises a question about how much diversification has actually been achieved.
The Binance hack that Cyprys cited as a source of uncertainty adds another dimension. Security incidents at large platforms can affect confidence in the sector as a whole, potentially influencing how willing customers are to trade and hold assets on exchanges. The note does not quantify that effect, but it lists it among the reasons for caution.
Crypto trading firms and investors will be reading the call as a gauge of how traditional finance views the near-term earnings picture for the sector, an audience that includes institutions deciding how much exposure to hold.
Comparisons with other publicly traded companies in the sector will be useful. Firms that earn a larger share of revenue from custody, lending or interest income may be less sensitive to trading volumes than a platform whose largest line is transaction fees. How the market treats those differences will influence how analysts view competitors in the coming weeks.
7. What should investors watch next?
The next signals will come from trading data. Investors will track whether volumes recover in the fourth quarter, since Coinbase's own figures through October 25 showed transaction revenue of about $165 million, and since further weakness would support Morgan Stanley's view.
The company's next quarterly report will show whether the fourth-quarter guidance for subscription and services revenue of $550 million to $630 million and adjusted expenses of $1.01 billion to $1.16 billion proves accurate. The date of that report has not been given in the note.
Other analysts may also revise their forecasts in response to the results and the guidance. Where they land will determine whether Morgan Stanley's cautious stance becomes a consensus view or remains an outlier. For now, the bank's position is clear: it expects earnings pressure to last through 2028, and it values the shares well below where they trade today.