Goldman Sachs downgrades Coinbase, upgrades Robinhood in the midst of crypto-meltdown
The recent decline in cryptocurrency prices has at least one large Wall Street firm staying on the sidelines of some cryptocurrency-related stocks.
Goldman Sachs analysts downgraded Coinbase (COIN) shares to Sell from Neutral on Monday, cutting the stock price target to $ 45 from $ 70.
In the same note, the company upgraded the shares in Robinhood (HOOD) to neutral from sale. Both companies offer cryptocurrency trading as a core part of their business.
“We believe current crypto-asset levels and trading volumes further weaken COIN’s revenue base,” Goldman Sachs analyst Will Nance wrote in a note Monday. The company expects Coinbase’s revenue to fall 61% in 2022, following a 514% increase in sales last year as Bitcoin and other cryptocurrency prices rose to record highs.
Goldman also notes that while Coinbase recently announced that it would cut 18% of employees, these layoffs will not be enough to bring Coinbase’s costs in line with reduced sales.
“We believe further cuts are needed, as the announced cost reduction effort only brings the number of employees back to the levels at the end of 1Q22 and resulted in COIN moving to the low end of its previous cost guidance,” Nance wrote. “We believe COIN will need significant cost base reductions to stop the resulting cash burn as retail activity dries up.”
The recent decline in cryptocurrencies – with the total market value of all cryptocurrencies falling below $ 1 trillion in recent days from a record high of about $ 2.8 trillion last year – is likely to have a similar impact on Coinbase’s top-line results, Goldman Sachs suggested.
Goldman Sachs is now also “incrementally more negative” on Coinbase’s ability to collect higher fees from users.
These concerns come after the platform’s recently announced plan to merge its Coinbase Pro with its basic trading platform aimed at retail customers with less trading experience.
“COIN’s retail platform has historically targeted less sophisticated customers who aim to easily / quickly buy / sell cryptocurrencies. This has enabled COIN to charge a significantly higher trading fee compared to its more advanced counterpart, Coinbase Pro, which has become marketed to more active traders given their more advanced trading functionality and pricing plan for producer-taker, “said Nance. “We believe that combining these platforms will reduce the friction between switching costs between the two platforms and potentially lead to compression of fee rates.”
Goldman’s new price target means about 28% downside from Friday’s final level. Coinbase shares were down 77% so far this year through Friday’s close.
Robinhood upgrade
In the same note to customers, Goldman also upgraded Robinhood, a move that comes about two months after the company downgraded the shares to Sell.
The latest change is mainly due to valuation, following Robinhood’s fall of more than 50% so far this year, and almost 30% landslides since early April.
Robinhood is also exposed to price fluctuations on cryptocurrencies: As of last year, 23% of the company’s transaction-based income came from cryptocurrencies.
“Equities have performed significantly worse since our downgrade, and we now see a more balanced risk reward,” Nance said.
Robinhood’s market value fell briefly below the level of cash it had on the balance sheet earlier this month before recovering, and Nance sees Robinhood’s cash position of around $ 6.2 billion and tangible book value of around $ 7 billion as the “soft valuation floor” for the stock .
However, Goldman Sachs still lowered the Robinhood price target to $ 9.50 per share from the $ 11.50 seen previously. Shares of Robinhood closed at $ 8.00 a day on Friday after recording a record low of $ 6.89 on June 16.
“The fundamentals are still very weak for HOOD, in our view, as the continued decline in retail risk appetite has weighed on active users and margin balances,” Goldman said in his note. “We believe equities are likely to remain limited in the near future … In the longer term, we believe HOOD needs to see progress on more recurring revenue streams and a return to user growth and engagement levels for equities to perform better, and while we do not does not see this happening in the short term, a combination of valuation support and a significant interest rate wind in the coming quarters is enough to move us to a neutral rating. “
–
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedInand YouTube
