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Coinbase Slips on Mizuho Concern Over Reliance on Commissions

Coinbase gets a price target hike from Mizuho Securities, but an analyst is concerned about the company's 'medium-term prospects.'

Coinbase Global  (COIN) - Get Coinbase Global Inc Report was sliding Tuesday after a Mizuho Securities analyst boosted his price target to $315 from $285 for the biggest U.S. cryptocurrency exchange, but said he was skeptical about the company's medium-term prospects.

Shares of the San Francisco company were down nearly 5% to $279.56.

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Analyst Dan Dolev, who has a neutral rating on the stock, said in a note to investors that "crypto exuberance drove elevated trading volumes on the Coinbase platform in April, nearly matching 1Q's record levels."

If the trend continues, Dolev said, second-quarter revenue may top consensus estimates by as much as 35%. 

The analyst said he was raising his price target despite his caution about the mid-term.

"While 2Q is shaping up to be stellar, we remain skeptical about medium-term prospects," Dolev said. "We are most concerned with heavy reliance on retail trading commissions (80% of sales)." 

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Over time, Dolev said, Coinbase's fees "may face downward pressure from competing platforms following the footsteps of zero-commission stock trading." 

"This is because platforms like PayPal  (PYPL) - Get PayPal Holdings Inc. Report and Cash App primarily use crypto trading as engagement tools," the analyst said.

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Coinbase opened its first day of trading last month after going public through a direct listing. 

Last week, the company said it would acquire Skew, a data visualization and analytics platform for cryptocurrency markets.

Venmo, which is owned by PayPal, said recently that it had opened its service to the buying, selling and holding of cryptocurrency directly within the Venmo app with as little as $1.

The service’s 70 million customers will be able to choose from four types of cryptocurrency: bitcoin, ethereum, litecoin and bitcoin cash.