Coinbase cut Costs and Bolstered rep, but Profits Remain Challenged: Analysts

Moody’s and JPMorgan analysts praised the Coinbase exchange for its outstanding reputation, but said it wouldn’t be enough to overcome the company’s profitability problems.

According to investment analysts, despite having a strong brand and credibility in the crypto business, cryptocurrency exchange Coinbase may experience profitability issues as a result of the crypto market slump.

On January 19, credit rating firm Moody’s posted a note on Coinbase outlining its downgrading of Coinbase’s senior debt and corporate family rating (CFR) – a rating provided to indicate a company’s capacity to meet its financial obligations.

Coinbase’s CFR and senior debt were re-graded to B2 and B1 from Ba3 and Ba2 respectively, suggesting the corporation is “non-investment grade” and “speculative and prone to significant credit risk” according to Moody’s.

The company stated that Coinbase is experiencing “significantly decreased revenue and cash flow production” as a result of “difficult conditions,” especially lower crypto pricing and trading activity.

Coinbase laid off 20% of its employees, or approximately 950 individuals, on January 10, the second wave of recent large layoffs following the June 2022 18% staff decrease in a bid to cut expenses.

Despite Coinbase’s efforts to retain liquidity, Moody’s predicted that “the company’s profitability will remain challenging.”

According to Moody’s, the bankruptcy of its crypto exchange peer, FTX, raises concerns and uncertainties about crypto regulation.

It stated that a sudden move by regulators in the crypto business could have a negative impact on Coinbase’s income due to increasing regulatory compliance costs.

However, Moody’s added that increasing oversight “may eventually favour the somewhat more mature and compliant crypto-asset platforms such as Coinbase.”

Meanwhile, JPMorgan analysts stated in a separate note that Coinbase’s reliability and reputation in the industry have improved following recent collapses.

“While the crypto-ecosystem has faced further significant credibility difficulties, Coinbase has emerged with its trust and brand strengthened — at least relative to the rest of the industry.”

In its most recent report, the financial firm’s analysts suggested Coinbase may even be a “beneficiary of the issues” other exchanges have suffered in the aftermath of FTX.

According to JPMorgan analysts, the forthcoming Shanghai hard fork for the Ethereum blockchain could be beneficial to the exchange.

The upgrade “may herald in a new era of staking for Coinbase,” according to experts, who estimate that 95% of retail investors on the site will stake Ethereum following the upgrade, earning Coinbase up to $600 million per year.

According to Yahoo Finance data, the Coinbase share price hit an all-time low of $31.95 on January 6 after more than a year of persistent price drops. Cathie Wood, the CEO of ARK Invest, had purchased $5.7 million in Coinbase stock the day before.

Coinbase and other crypto-related companies’ stock prices have risen since then.

Coinbase has gained 72.6% since its low on January 6 and was trading at more than $55 at the close of market on January 20, representing an 11.6% gain on the day.