What happened
Shares of cryptocurrency-exchange company Coinbase Global (COIN +0.93%) traded modestly higher on Tuesday after the company updated investors on its hiring plans. Spoiler: It's slowing down. And that's something the market is viewing in a positive light. As of 10:15 a.m. ET, Coinbase stock was up 5%.
NASDAQ: COIN
Key Data Points
So what
Coinbase reported financial results for the first quarter of 2022 on May 10 and the report showed a slowdown in its business. Monthly transacting users fell to 9.2 million from 11.4 million in the previous quarter -- a 19% sequential decline. And quarterly trading volume of $309 billion was the lowest in over a year.
Image source: Getty Images.
Despite the slowdown in its business, Coinbase had incredibly ambitious hiring plans this year. Management said it planned to hire 6,000 new employees in 2022 -- for perspective, it ended 2021 with just 3,730 employees. And the company was making good progress toward its full-year goal considering it had over 1,200 net new employees at the end of Q1.
However, in a blog post yesterday, Coinbase Chief Operating Officer Emilie Choi wrote that the company is slowing down its hiring pace. Reading between the lines, investors can infer that business is slow and hiring too aggressively right now would disproportionately effect Coinbase's bottom line.
Now what
Coinbase earned $3.6 billion in net income in 2021 on less than $7.4 billion in net revenue -- an extraordinary profit. However, the company swung to a massive $430 million net loss in Q1 as its operating expenses soared, mostly due to its hiring. Therefore, it's not surprising to see the market appreciate management's awareness of the situation.
In the long term, it will be important to see Coinbase return to growth. The cryptocurrency market has seen unprecedented adoption over the last couple of years, so a temporary slowdown isn't necessarily troublesome. But the longer it takes Coinbase to return to growth, the more investors should start to question whether the cryptocurrency secular trend is strong enough to propel this business forward.
