After Goldman Sachs reduced the troubled cryptocurrency exchange’s shares to a “sell” rating and said that it could need to make further job cutbacks, Coinbase has been under increased pressure.
On June 27, the bank predicted that Coinbase’s revenue will likely decline 61 percent year over year, adding that the business may need to further streamline itself. The prediction caused the company’s shares to decline in pre-market trading.
Since the so-called crypto winter fell on the business, Coinbase has been the most well-known company to lay off employees.
Following more than six months of declining cryptocurrency values, the exchange has already let off approximately 1,100 employees, or 18 percent of its staff, joining others like Gemini and Crypto.com in doing so.
Brian Armstrong, the company’s CEO, claimed that the growth was “too rapid.”
But Goldman believes it needs to cut further.
Analyst Will Nance wrote in a research note that Coinbase “will need to make substantial reductions in its cost base in order to stem the resulting cash burn as retail trading activity dries up.
Coinbase faces a difficult choice between shareholder dilution and significant reductions in effective employee compensation, which could impact talent retention, in our view.”
It follows Moody’s downgrading Coinbase’s corporate family rating from Ba2 to Ba3 and its senior unsecured notes’ guaranteed rating from Ba1 to Ba2.
Both grades indicate a condition known as “junk,” or non-investment grade, however, Ba3 is the lowest in the group and indicates “substantial” risk.
The ratings agency cited “substantially weaker revenue and cash flow generation due to the steep declines in cryptoasset prices that have occurred in recent months and reduced customer trading activity”.
Both Moody’s ratings have been flagged for potential further downgrading. It anticipated that the present climate would “remain challenging” for the company’s profitability.
That was before to the second crisis of the year engulfing the cryptocurrency sector, which sent the price of bitcoin below $20,000 and prompted analogies to the financial catastrophe of 2008.
Goldman said it projected Coinbase to post “breakeven to negative” adjusted profit over the coming years.
The bank’s analysts wrote, “We believe current cryptoasset levels and trading volumes imply further degradation in Coinbase’s revenue base, which we see falling ~61% YoY in 2022, and ~73% in the back half of the year,”.
Last week, Coinbase refused to rule out further job cuts, according to the Financial Times.
Faryar Shirzad, Coinbase’s chief policy officer, at an event in Amsterdam on 24 June said “You never say never. The only commitment we can make is that we are going to operate the company responsibly and for the long haul and if that requires additional action, we will take that,”. He added: “We don’t anticipate it at this time.”