Coinbase Stock Rallies 9% Following Cost-Cut Announcement

Shares of CoinbaseCOIN
Global have been recovering from their swoon of 2022 this month, as the publicly traded cryptocurrency exchange became the subject of chatter on Wall Street, with conflicting elements of cost cuts and money manager Cathie Wood’s bullishness versus a mix of negative and neutral outlooks from investment-banking analysts and a bond downgrade

The stock ended Thursday at $47.55, a 9% gain for the day and up from just $33.26 on Friday. The Tuesday announcement that the exchange would be firing about 20% of its workforce on Tuesday seems to have been taken as a positive development by investors.

Ark Invest’s Cathie Wood has been bullish on the stock over the last week, adding over $7 million worth of its shares to her funds. However, major banks and bond rater Standard & Poor’s did not have quite the same sentiments.

Bank of AmericaBAC
analyst Jason Kupferberg was among the naysayers on Wall Street, downgrading the exchange to underperform from neutral, cutting the price target to $35 from $50.

A note from Jefferies, which has a hold rating on the stock, said “Coinbase will be acutely pressured in the near term.” This is due to retail customers trading less in a bear market. However, due to the crypto exchanges healthy balance sheet and being a publicly traded company, it believes the company will survive the crypto winter.

On Thursday, Standard & Poor’s trimmed its rating on the company’s issuer and senior unsecured debt ratings on Coinbase to BB- from BB, forecasting the crypto exchange’s profitability will remain under pressure in 2023 despite the cost-cutting efforts and an expected boost to interest income.

The November collapse of the FTX empire has reduced the digital-assets industry’s credibility, S&P said, agreeing with Jefferies that this would weigh on trading, which represents about 80% of Coinbase’s revenue.

There was some positive news, however, Coinbase has an agreement with Circle, the provider of USD Coin (USDCUSDC
), that generates income from U.S. Treasuries the exchange holds to back the stablecoin. Those yields are rising as the Federal Reserve tightens monetary policy. Coinbase also generates interest income on about $5 billion of cash it holds and on traditional currencies held in customer accounts, S&P said.

Assuming trading remains depressed and even with the beneficial effects of cost cuts and rising interest rates, S&P projects “very small” positive profit based on adjusted earnings before interest, taxes, depreciation and amortization. That would follow negative Ebitda the company has forecast for 2022, with a maximum loss of $500 million.

The company had about $3.4 billion of outstanding notes at the end of Q3, according to its latest quarterly filing with the U.S. Securities and Exchange Commission. Its 3.375% notes due in October 2028 edged up to 60 cents on the dollar from 59.116 on Wednesday. That trimmed the yield to 13.7% from 14%, according to industry regulator Finra.

Still, the bonds yielded 4.69% a year ago and the stock traded at $234.70 in the waning days of the latest crypto bull market.

Elsewhere in the digital-assets sphere, BitcoinBTC
up 7% for the day and trading around $18,800 while ether’s price reached $1,425, up 6%, according to data from CoinMarketCap.

The value of all crypto currencies breached the $900 billion barrier, rising to $904.7 billion late in the day after reaching a December nadir of $790.4 billion, data from CoinMarketCap shows. Late in 2021, the market was worth almost $3 trillion.