Stock Analysis & Ideas

Are Coinbase’s Headcount Reductions Enough to Counter Bearish Trends? J.P. Morgan Weighs In

The crypto space has gone radioactive sending all and sundry to the exit gates. The bull market took what at first looked like a pause but then rocked by several calamitous developments – the stablecoin TerraUSD’s de-peg, lending platform Celsius’ halt of withdrawals and 3AC’s funding issues – on top of an ugly macro environment. Bitcoin’s price meltdown has left Daddy Crypto at levels below the previous cycle’s all-time high – a highly symbolic and negative development.

Bitcoin’s maddening volatility and the “crypto winter” are nothing new. However, with the cold wind blowing at the gates, some are now kicking into survival mode, and taking steps to counter the space’s downturn. For example, leading exchange Coinbase (COIN) recently announced it is cutting 1,100 jobs – an 18% headcount reduction – but J.P. Morgan’s Ken Worthington wonders if that will actually suffice.

“Based on the severity of the decline in crypto token prices, it doesn’t seem to us that Coinbase went far enough, and, thus, we would expect more cost cutting in coming quarters to right-size the business to better reflect the earnings power of the business should crypto prices not rebound,” Worthington noted.

Given the overall drop in crypto coins’ prices, Worthington anticipates Coinbase’s Q2 revenue will take a big hit as trading revenue is not based on tokens traded but rather on value traded. That said, the cost reduction measures should provide the company with “more expense flexibility” and will enable it to modify the headcount based on the state of the market.

Still, should crypto prices not “materially rebound,” more cost-cutting will be called for and that has another, less tangible effect, namely on morale and here Worthington notes it’s “much easier to grow than shrink headcount.”

So, what does it all mean for investors? Worthington’s rates COIN shares a Neutral, along with a $61 price target. This figure suggests shares have room to climb 15% higher over the coming months. (To watch Worthington’s track record, click here)

The Street’s average target, though, is far more bullish; at $133.11, the stock is anticipated to appreciate 126% in the year ahead. Overall, based on 14 Buys, 5 Holds and 2 Sells, the analysts’ view is that this stock is a Moderate Buy. (See Coinbase stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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