Coinbase Cut Costs And Boosted Rep, But Profits Remain Challenged – Analysts

Analysts from JPMorgan and Moody’s hailed Coinbase crypto exchange for its strong reputation but stated that it would not be enough to resolve its profitability woes.

Coinbase crypto exchange will not escape from the profitability issues that it will face from the crypto market downturn, despite having a strong brand and credibility in the cryptocurrency market, based on investment analysts.

Credit Rating Company Moody’s released a note on Coinbase on January 19 discussing its downgrade of Coinbase’s senior debt and corporate family rating (CFR) – a rating that is assigned to reflect the opinion of a firm’s ability to honor its financial obligations.

Coinbase’s CFR and senior debt were re-graded to B2 and B1 from Ba3 and Ba2 respectively, meaning that the company is “non-investment grade” and “speculative and subject to high credit risk” as highlighted by Moody’s

The company noted that Coinbase is suffering from “substantially weakened revenue and cash flow generation” because of “challenging conditions,” particularly depressed crypto prices and lower trading activity.

The market conditions saw Coinbase lay off 20% of its employees, nearly 950 people, on January 10, its second wave of recent major layoffs after its June 2022 18% headcount cut in an aim to cut costs.

Nonetheless, despite Coinbase’s bid to preserve liquidity, Moody’s still expected “the company’s profitability to remain challenged.”

The bankruptcy of its crypto exchange peer, FTX, is a cause for increased concern and uncertainty about crypto regulation based on Moody’s data.

It said a sudden move by regulators in the crypto sector might negatively affect Coinbase’s revenue through increased expenses and costs of regulatory compliance.

Moody’s added, nonetheless, that increased oversight “could ultimately favor the relatively more mature and compliant crypto-asset platforms such as Coinbase.”

In the meantime, a separate note from analysts at JPMorgan insisted that Coinbase’s credibility and reputation in the sector have strengthened after some recent collapses.

“While the crypto-ecosystem has suffered further meaningful credibility issues, Coinbase has emerged with its credibility and brand strengthened — at least relatively.”

The financial company’s analysts which maintained a rating of “neutral” for Coinbase in its most recent note said Coinbase might even be a “beneficiary of the challenges” other crypto exchanges have faced in the wake of the FTX saga.

The forthcoming Shanghai hard fork for the Ethereum blockchain might also be a positive for the exchange as mentioned by JPMorgan analysts.

This upgrade “could usher in a new era of staking for Coinbase” with analysts now estimating 95% of retail investors on the platform might stake Ethereum post-upgrade, netting Coinbase up to almost $600 million per year.

On January 6, the Coinbase share price reached an all-time low of $31.95 after more than a year of continuous price drops as highlighted by Yahoo Finance data. The day prior, Cathie Wood, veteran investor, and ARK Invest CEO, acquired $5.7 million worth of Coinbase shares.

Since then the share price of Coinbase and other crypto-related firms have surged. Coinbase gained 72.6% since the January 6 low and traded at more than $55 at the close of the market on January 20, where it saw an 11.6% gain on the day.