Kynikos Associates founder and legendary short seller Jim Chanos announced a short position in Coinbase Global Inc COIN in March with the stock trading around $180 per share. Although the stock has been more than cut in half since, the short seller sees further downside ahead.
What To Know: Chanos initially shorted Coinbase on the basis that the company would not be able to maintain its high trading fees.
“That’s kind of the scary thing about this story is that we have not seen retail fee compression at Coinbase yet,” Chanos said Tuesday on CNBC’s “Fast Money Halftime Report.”
The dollars per transaction on the retail side of Coinbase’s business were actually slightly higher year-over-year, Chanos noted.
“That compression is still ahead of them,” he said.
Chanos acknowledged the stock has been cut in half since he announced his short position, but so have revenue estimates, he said.
“This is still an incredibly expensive stock for a company that, let’s be clear, is losing a billion dollars a quarter,” Chanos said. “And at the end of the day, that’s the real problem.”
Coinbase CEO Brian Armstrong responded to Chanos’ comments in an interview on CNBC, saying the company continues to diversify its revenue streams into services and subscriptions, which should offset any future fee compression, but the short seller didn’t buy it.
Chanos told CNBC that services and subscription revenue has been flat for the last four quarters.
“It’s a wonderful thing to sort of have you look elsewhere into the core business, which is of course declining, but services and subscriptions is not growing,” he said.
What’s Next: Chanos pointed out that Coinbase shares trade at a “stratospheric valuation” relative to other brokers like Robinhood Markets Inc HOOD and SoFi Technologies Inc SOFI, which trade just slightly above tangible book value.
“The tangible book value at Coinbase is about $20 a share, but it’s going down at the rate of $4 or $5 a share per quarter, so Coinbase is going to have a tangible book of about $10 at the end of the year,” Chanos said.
With the stock trading above $70 per share, the short seller believes the risk/reward opportunity is skewed to the downside.
“Investors are taking huge amounts of risk here for what I think will be paltry levels of reward and that’s of course before we get commission compression,” Chanos said.
COIN Price Action: Coinbase has a 52-week high of $258.80 and a 52-week low of $40.83.
The stock lost 0.41% Tuesday, closing at $71.18, according to Benzinga Pro.
Photo: courtesy of Coinbase.