During a boom, companies tend to need more employees or services immediately. So they pay market rates… and often end up overbuilding when the boom comes to an end. Many companies have already started laying off employees, or have held off on hiring new ones.
If a company can find a way to do the same level of business (or more) with fewer employees, those lower expenses can lead to a bigger profit. That’s true even if the underlying business isn’t growing.
One company aggressively cutting expenses right now is Coinbase Global (COIN). The cryptocurrency brokerage reported a 22 percent drop in operating expenses in the most recent quarter.
That hasn’t helped declining crypto trading volumes, but it does help reduce losses at the company. Plus, Coinbase has reported higher revenues from rising interest rates.
Action to take: The leader of the cryptocurrency brokerage sector is still down 83 percent over the past year. Shares will take time to recover from the current bear market in cryptocurrencies.
But as the leader for institutional buyers, the company will likely come out ahead, especially as smaller competitors go out of business. Look to accumulate share here.
For traders, expect continued volatility in shares. The March 2023 $90 calls, last going for about $4.70, offer mid-double-digit returns if shares continue their post-earnings move higher.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.