Coinbase falls after JPMorgan downgrade on 'extreme decline' in crypto prices and as the exchange announces deep job cuts
- Coinbase shares fell Tuesday following a ratings downgrade at JPMorgan and after the company announced job cuts.
- The company itself said it is reducing its staff size by 18% as it prepares for a recession to hit trading revenue.
Coinbase shares dropped Tuesday, hurt by a ratings downgrade as JPMorgan said the crypto exchange will struggle with the selloff in crypto prices alongside its investment ramp-up, and as the company itself said it's laying off workers as it prepares for the US economy head into a recession.
Shares fell 5.2% to $49.40 as trading got underway. The stock this year through Monday's session had lost 79%.
JPMorgan cut its rating on Coinbase to neutral from overweight and in its research note published Tuesday said it remains a believer in cryptocurrency markets and blockchain technology.
However, "the extreme decline in the price of cryptocurrency markets in 2Q22 combined with Coinbase's ramp in investment would appear to not only make it challenging for it to generate a profit in the near future but also to meet its annual loss cap of $500 million of annual EBITDA," analyst Kenneth Worthington wrote.
The research note arrived a day after the value of the cryptocurrency market dropped below $1 trillion for the first time since February 2021, according to CoinMarketCap. The value on Tuesday was still below that threshold, at $940.02 billion.
Bitcoin has lost 30% just in recent days to trade below $23,000 on Tuesday and has lost more than 50% this year. Ether, the token on the Ethereum blockchain, has slid 33% over the past week.
JPMorgan slashed its price target on Coinbase by 60%, to $68 from $171, and said there's "potential for more downside to the shares should cryptocurrency markets not stabilize and should management not announce more definite steps to reducing the cost base."
Coinbase had hired 3,200 employees over the last year, with 1,200 hired in the first quarter of 2022, it said. "It was a massive amount of hiring for a company now with ~5,000 employees," the bank said.
Later Tuesday morning, Coinbase's management in a blog post said it will reduce its staff size by about 18% as it appears the economy is entering a recession.
"A recession could lead to another crypto winter, and could last for an extended period," and likely pressure trading revenue, said Brian Armstrong, Coinbase's founder and CEO.
"We grew too quickly," he added, noting the company had 1,250 employees at the start of 2021. "At the time, we were in the early innings of the bull run and adoption of crypto products was exploding," Armstrong said. "While we tried our best to get this just right, in this case it is now clear to me that we over-hired."
Coinbase went public in April 2021.