Analysts ‘Encouraged’ by Coinbase Layoffs, Showing Company Is Being Financially Disciplined

Analysts on Wall Street reacted positively to a second round of job cuts announced by Coinbase (COIN) on Tuesday.

“We are encouraged by this morning's news, as it shows the company is taking financial discipline seriously in a very challenging crypto/macro environment,” analysts from Barclays wrote. However, they said the layoffs could also be a sign the crypto exchange company is preparing for a tough year ahead.

Coinbase said it will cut 950 jobs, about 20% of its current workforce, in a move to bring down the company’s operating expenses by roughly 25% by the end of March. The U.S. exchange already laid off over 1,000 employees in June.

Coinbase’s stock surged almost 9% to $41.62 on the job cut news as multiple Wall Street banks reiterated their positive long-term outlook on the company.

Investment giant Oppenheimer held onto its outperform rating and wrote in a report on Monday that Coinbase has the potential to be “one of the few long-term survivors” in the crypto space, citing “many positives” that have yet to be priced into the stock including diversification, market share gains and a strong balance sheet, as well as short-squeeze potential.

"This job cut is a reflection of the current challenging environment so that Coinbase can maintain a certain loss guardrail," Owen Lau, analyst at Oppenheimer said. "Unfortunately many crypto companies may not make it, but Coinbase has a strong balance sheet and could emerge stronger on the other side."

Meanwhile, asset manager Needham, which expects COIN to trade at $73 by the end of the year and kept the stock at a buy rating, wrote in a note Tuesday that the company’s headcount reductions are a “necessary step” given the uncertain volume picture this year, but said investors should remain cautious about the continuing fallout from FTX’s collapse.

Coinbase, which makes the majority of its money from retail trading fees, saw a steep decline in revenue in 2022 as a result of multiple bankruptcies in the crypto market, including those of Celsius Network and FTX, which caused distrust among investors and a sharp fall in trading volume across the industry.

Some analysts believe that Coinbase’s co-ownership in Circle’s USDC stablecoin and the expansion of that could help the company in the long term, citing growing market dominance. USDC, which has a market cap of $44 billion, is currently the fourth-largest token behind bitcoin (BTC), ether (ETH) and tether (USDT) but has recently narrowed the gap with USDT “tremendously,” Barclays wrote.

Needham wrote it “remains positive” on interest income from the expansion of USDC, as well.

UPDATE (Jan. 10, 20:44 UTC): Adds comment from Owen Lau, analyst at Oppenheimer.

Read more: Jefferies Initiates Coverage of Crypto Exchange Coinbase With ‘Hold’ Rating on Near-Term Concerns