Coinbase to cut 20% of its workforce in second big round of job cuts

Coinbase is cutting about a fifth of its workforce as it seeks to preserve liquidity during the crypto market downturn.

The exchange plans to cut 950 jobs, according to a blog post published Tuesday morning. Coinbasewhich had about 4,700 employees at the end of September, already cut its workforce by 18% in June, citing the need to manage costs and grow “too quickly” during the bull market.

“With perfect hindsight, in hindsight, we should have done more,” CEO Brian Armstrong told CNBC in a phone interview. “The best you can do is react quickly once the information is available, and that’s what we’re doing in this case.”

Coinbase said the move would result in new spending of between $149 million and $163 million for the first quarter. The layoffs, along with other restructuring measures, will reduce Coinbase’s operating expenses by 25% for the quarter ending March, according to a new regulatory filing. The crypto company also said it expects full-year adjusted EBITDA losses to be below the $500 million “safeguard” set last year.

After reviewing various stress tests for Coinbase’s annual revenue, Armstrong said “it became clear that we would need to cut expenses to increase our chances of doing well in each scenario” and there was “no way” to do this without reducing the number of employees. . The company will also close several projects with a “lower probability of success”.

Cryptocurrency markets have been rocked in recent months following the collapse of one of the biggest players in the industry, FTX. Armstrong pointed to this fallout and the growing pressure on the industry from “unscrupulous industry players” referring to FTX and its founder, Sam Bankman-Fried.

“The collapse of FTX and the resulting contagion has created a black eye for the industry,” he said, adding that there were likely more “shoes to drop.”

“We may not have seen the end of it – there will be increased scrutiny of various companies in space to ensure they are playing by the rules,” Armstrong said. “In the long run, that’s a good thing. But in the short term, there are still a lot of fears in the market.

Cryptocurrencies have suffered alongside tech stocks as investors flee riskier assets amid a broader economic downturn. Bitcoin is down 58% in the past year, while Coinbase shares are down over 83%.

Coinbase joins a chorus of other tech companies that are cutting jobs after going on a hiring spree during the Covid pandemic. Last week, Amazon said it would cut 18,000 jobs, more than the online retailer originally estimated last year, while Selling power reduced its workforce by more than 7,000, or 10%. Elon Musk cut about half of Twitter’s workforce after taking over as CEO last year, and Meta cut more than 11,000 jobs, or 13%. Crypto firms Genesis, Gemini, and Kraken have also reduced their workforces.

“Every company in Silicon Valley felt like we were just focused on growing, growing, growing, and people were almost using their employee numbers as a symbol of the progress they were making,” Armstrong said. . “The focus now is on operational efficiency – it’s a healthy thing for the ecosystem and the industry to focus more on those things.”

Early last year, Coinbase announced plans to create 2,000 product, engineering, and design jobs. Armstrong said he is now trying to change Coinbase’s culture to “get back to its start-up roots” of smaller teams that can move quickly.

Coinbase went public in April 2021 and has seen its share price plummet ever since. The stock is trading below $40 after surging to $341 on its public debut. Coinbase debt maturing in 2031 continues to trade at around 50 cents on the dollar. The company still had approximately $5 billion in cash and cash equivalents at the end of September.

Coinbase said it would email affected employees to their personal accounts and revoke access to company systems. Armstrong acknowledged that the latter “seems sudden and harsh” but “is the only prudent choice given our responsibility to protect customer information.”

Despite the domino effect of industry bankruptcies and a sharp decline in trading volume, Armstrong has been adamant that the industry is not going away. He said the demise of FTX would ultimately benefit Coinbase as its biggest competitor is now wiped out. Regulatory clarity could also emerge, and Armstrong said it “validates” the company’s decision to build and go public in the United States. The CEO compared the current environment to the boom and bust of dot-coms.

“If you look at the internet age, the best companies have become even stronger through careful cost management,” he said. “That’s what’s going to happen here.”