Silvergate Capital ( NYSE: SI ) stock tumbled 11% in Friday premarket trading, extending the outsized slide from the prior session, as JPMorgan analyst Steven Alexopoulos downgraded the crypto-focused bank to Neutral from Overweight, citing its worse-than-expected preliminary Q4 results. On Thursday, the company said it's slashing headcount by around 40% in a cost-cutting move. Also, it's taking a $196M impairment charge after seeing a nearly 70% Q/Q drawdown in digital asset customer deposits amid a tough backdrop for the crypto space. "The implications to the company’s business from the significant reduction in client deposits has near- as well as longer-term impacts," Alexopoulos wrote in a note. Over the medium term, deposit balances will likely keep retreating back toward levels seen prior to 2020 levels, before the latest bull market took hold, he noted. For the long-term, the company's profitability will be impacted since it will likely need to maintain higher levels of liquidity than before. "While one could argue that the shares remain cheap on the surface, given the wildcards associated with the medium- as well as long-term impacts to the business, we see upside potential being fairly limited until the earnings power of the franchise is better understood," the analyst contended. Similarly, Bank of America analyst Brandon Berman cut Silvergate ( SI ) stock to Underperform from Neutral after its Q4 metrics "introduced a new overhang on the stock: negative earnings growth," he wrote in a note. Berman lowered his 2023 EPS estimate by 90% to $0.67, mostly reflecting a 50% reduction to his revenue growth forecast. By comparison, analysts expect EPS to grow 64.8% Y/Y to $2.46. In late October, when SI was around $60 a share, Seeking Alpha's Quant rating system flagged the stock at high risk of performing badly given negative EPS revisions and decelerating momentum. Now, SI is changing hands at $11.24. In mid-December, BTIG said short traders will eventually cover their bearish bets on SI, resulting in a short squeeze .
