Coinbase credit rating cut at S&P on weak earnings, market share loss

S&P Global Ratings downgraded Coinbase Global’s (COIN) credit rating to BB from BB+, bringing its corporate rating to two levels below investment grade as its weak Q2 results reduces its coverage metrics and as the cryptocurrency exchange loses market share.

In addition, S&P assigned a negative outlook to the crypto company, reflecting “uncertainties about the duration of the crypto market downturn and the company’s ability to operate efficiently by managing operating expenses prudently.”

Still, Coinbase (COIN) stock has risen 2.3% in early Friday trading, retracing some of its 11% decline on Thursday.

The rating analysis incorporates even wider cyclical variations — or peak-to-trough changes in revenue, EBITDA, and EBITDA margin — than S&P had previously anticipated. That’s expected to result in weaker profitability and credit metrics, S&P said.

Coinbase (COIN) competitor Binance reduced its bitcoin trading fee to zero worldwide in July. The higher trading fees at Coinbase, compared with its peers, along with aggressive pricing by its rivals, “could increase the risk of fee compression in its retail channel (which generated about 80% of the company’s total revenues in the first half of 2022),” according to the S&P note.

Regulatory risks are also rising, it added. Last month, Bloomberg reported that the SEC is investigating whether the crypto exchange improperly allowed people to trade digital assets that should have been registered as securities. That same month, the SEC charged a former Coinbase (COIN) employee with insider trading of crypto assets.

See why SA contributor Juraj George Salapa makes the long-term bull case for the stock