Coinbase came under more pressure after Goldman Sachs downgraded the struggling crypto exchange’s stock to a “sell” rating and said it may need to cut more jobs.
Shares of the company fell in premarket trading on June 27 after the bank said Coinbase’s revenue would likely fall 61% year-over-year, adding that the company may need to cut further .
Coinbase has been the most high-profile company to cut jobs since the so-called crypto winter hit the industry.
The exchange has already laid off around 1,100 people — 18% of its workforce — after more than six months of declining crypto prices, joining Gemini and Crypto.com in making layoffs. Chief Executive Brian Armstrong said the company had grown “too quickly”.
But Goldman thinks it needs to cut more. Analyst Will Nance wrote in a research note that Coinbase “will need to make substantial reductions in its cost base to stem the resulting cash burn as retail activity dries up.” .
“[Coinbase] faces a tough choice between shareholder dilution and significant reductions in effective employee compensation, which we believe could impact talent retention.
It comes after Moody’s downgraded Coinbase’s family of companies rating to Ba3 from Ba2 and its senior unsecured secured notes to Ba2 from Ba1.
Both ratings signify so-called undesirable or substandard status, but Ba3 is the lowest rating in the category, indicating “substantial” risk.
The rating agency cited “significantly lower revenue and cash flow generation due to the sharp drop in crypto-asset prices that has occurred in recent months and reduced trading activity from clients”.
Both Moody’s ratings were placed under review for further downgrade. He expected the company’s profitability “to remain challenged in the current environment.”
In May, Coinbase posted a quarterly loss of $430 million and a 19% drop in monthly users. That was before the second crash of the year gripped the crypto industry, sending bitcoin below $20,000 and prompting comparisons to the financial crash of 2008.
Goldman said it expects Coinbase to post “break-even to negative” adjusted earnings over the next few years.
“We believe that current crypto-asset levels and trading volumes imply further deterioration in [Coinbase’s] revenue base, which we see falling around 61% year-over-year in 2022 and around 73% in the second half of the year,” the bank’s analysts wrote.
Last week, Coinbase declined to rule out further job cuts, according to the FinancialTimes.
“You never say never. The only commitment we can make is that we will operate the business responsibly and for the long term and if it requires additional measures, we will,” said Faryar Shirzad, Chief Policy Officer of Coinbase, during an interview. an event in Amsterdam on June 24.
He added: “We are not anticipating it at the moment.”
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