Coinbase To Spend $150M On Recent Cuts — But Still Has Plenty of Cash
Coinbase is set to spend roughly $150 million in total restructuring charges, though the amount represents a small fraction of its balance sheet cash
Skrypnykov Dmytro/Shutterstock.com modified by Blockworks
Coinbase appears set to hone in on fewer business lines as it implements cost-saving measures, as one analyst said the company’s NFT platform could be at risk.
CEO Brian Armstrong revealed in a blog post Tuesday morning that the company would be laying off 950 more employees. The cuts come around nine months after Coinbase laid off 18% of its staff, around 1,100 people. Coinbase’s latest layoffs represent a further 20% headcount reduction.
But Coinbase’s latest staff cuts are part of a larger restructuring of the business.
“As part of a headcount reduction like this, we will be shutting down several projects where we have a lower probability of success,” Armstrong wrote. “Affected teams will receive communication on this today. Our other projects will continue to operate as normal, just with fewer people on the team.”
A Coinbase spokesperson declined to comment on the projects the company plans to shutter.
Morningstar analyst Michael Miller said any project accounting for little revenue could be cut as Coinbase seeks to limit losses.
“For example, its NFT trading platform still does not generate any kind of meaningful volume and pales in comparison to the market leaders, which could place it at risk.”
Coinbase launched its NFT marketplace last year. The company said in a blog last month that it was focused on “supercharging key building blocks for web3,” such as its self-custody wallet, NFT capabilities and developer tools.
Miller said he thinks Coinbase is set to continue moving into the payments space, noting its participation in the USD Coin (USDC) ecosystem and the expansion of its Coinbase Commerce offerings.
“Outside of that, its cryptocurrency trading business will likely remain a core focus given that it remains the largest source of revenue for the firm, even with the sharp decline in trading volume,” he added.
Coinbase’s transaction revenues declined to $366 million during the third quarter of 2022 — a quarter-over-quarter drop of 44% — due in part to lower trading volumes. The company suffered a net loss of $545 million during the three-month period.
The crypto exchange has not yet revealed financials for the fourth quarter of 2022.
A big balance sheet
Due to the workforce reduction, Coinbase said in a filing it expects to incur between $149 million and $163 million in total restructuring charges during the first quarter of 2023. This includes up to $68 million in cash charges related to employee severance and other termination benefits and up to $95 million in stock-based compensation expenditures.
The company had roughly $5 billion in cash on its balance sheet, as of Sept. 30, according to its third quarter shareholder letter. Some analysts have touted the company’s potential upside over the long term, despite challenges brought about by the fall of FTX and the broader crypto winter.
“Coinbase remains well-capitalized and crypto isn’t going anywhere — in fact, recent industry events will ultimately benefit Coinbase and crypto by weeding out the bad players and ushering in regulatory clarity,” a Coinbase spokesperson told Blockworks. “We will keep building great products and increasing economic freedom around the world so that when better days arrive, we will be ready.”
Coinbase’s stock price is down about 82% from a year ago, but is up about 20% since the start of 2023. The price was up about 6% on Tuesday alone, as of 1:15 pm ET.
Owen Lau, a senior analyst at Oppenheimer & Co., said in a Monday research note that Coinbase stock is trading at a “depressed multiple” compared to comparable high-growth fintech stocks.
“[Coinbase]’s near-term trading outlook is challenging, but interest income, consolidation, diversification, staking and crypto adoption continue to provide tailwinds longer-term,” he wrote. “With a strong balance sheet and reputable platform, [Coinbase] will likely emerge stronger on the other side.”
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