Brian Armstrong sought to reassure investors as the company's stock plunged to new lows.

In brief

  • Coinbase shares traded as low as $50 on Wednesday, a far cry from last year's high of $381.
  • CEO Brian Armstrong tweeted reassurances suggesting the stock is a buy.

Coinbase shareholders are reeling as the stock price fell about 30% on Wednesday, after the company posted earnings that widely missed analysts' expectations.

The stock had already been subject to a widespread selloff due to a broader meltdown in the crypto markets, but Tuesday's earnings report caused it to tumble to around $50 in mid-day trading today.

The current price reflects a staggering 87% drop from April of 2021 when Coinbase went public through a direct listing and shares briefly traded at $381. While the stock mostly held its value until the end of last year, it began to slump as the crypto markets cooled off in January before falling precipitously last month.

Coinbase executives, however, appear to be taking the situation in stride. On Wednesday, CEO Brian Armstrong quoted the well-known venture capitalist Fred Wilson in a tweet, saying short term market turmoil can “offer fire sale prices on the greatest companies in the world”—suggesting $50 Coinbase stock could be a bargain.

“Markets are irrational in the short term but not over the long term. They sometimes offer fire sale prices on the greatest companies in the world.” – @fredwilson

— Brian Armstrong – barmstrong.eth (@brian_armstrong) May 11, 2022

Armstrong's tweet is consistent with the tone of Coinbase executives in an investor call following yesterday's earnings release. On the call, CFO Alesia Haas dismissed concerns about the company's spending—particularly its recent hiring of 1,200 employees—and said Coinbase is not considering layoffs.

“We can choose profitability over investment in the business, but we chose investment in the business,” Haas said.

Haas and Armstrong also reiterated the company's long-term strategy of building for a future, crypto-centered economy through both good times and bad.

The executives' confidence may be justified in that Coinbase has large reserves of cash and has posted large profits in four of the five quarters it's been a public company (its first loss came this year as a slowdown in trading saw Coinbase lose $430 million in Q1).

On the other hand, the company's price-to-earnings (P/E) ratio—an important metric that suggests investors' view of a firm's future prospects—has fallen to 3.5. That figure is almost unheard of, as public companies' P/E ratios are typically well above 10, and it's alarmed some market watchers.

Coins p/e has catered from 140 to 5 in a year, I don’t remember seeing that kind of drop. Seems it’s mostly reflecting the bear market & post COVID macro expectations, but it’s brutal

— Maya Zehavi (@mayazi) May 11, 2022

my observation has nothing to do with fundamentals. it's just that when any stock trades at less than 2x revs (or, in this case 2x cash) that's markets way of saying its chances of surviving on its own are slim

— Bernhard Warner (@BernhardWarner) May 11, 2022

Coinbase's share price may have been further buffeted by a headline suggesting the company could face the risk of bankruptcy, and cause customers to lose some of their crypto holdings in the process.

irresponsible headline let’s the reader fill in the blanks and assume coinbase warned it’s own bankruptcy is imminent

— Neeraj K. Agrawal (@NeerajKA) May 11, 2022

The headline appears to have been spurred by a footnote in Coinbase's earnings filings related to bankruptcy. Armstrong, however, noted that the bankruptcy language was spurred by new SEC regulations and that customers' funds are safe “even in a black swan” event.

Toward the end of the trading day on Wednesday, Coinbase shares had recovered somewhat, climbing closer to $55. But it remains to be seen whether $50 will come to be a floor for the stock or if additional market shocks sink it further.

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