Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Coinbase Downgraded to Sell at Goldman, Robinhood Upgraded to Neutral

Published 27/06/2022, 12:04
Updated 27/06/2022, 12:04
© Reuters

© Reuters

By Investing.com Staff

Goldman Sachs analyst Will Nance made two significant changes in its coverage of crypto brokers Monday - downgrading Coinbase (NASDAQ:COIN) to Sell from Neutral while upgrading Robinhood (NASDAQ:HOOD) to Neutral from Sell amid the continued drop in crypto prices and the slowdown of trading activity.

With the Coinbase downgrade, Nance slashes his price target to $45 from $70, suggesting a ~24% downside. "We believe current crypto asset levels and trading volumes imply further degradation in COIN’s revenue base, which we see falling ~61% YoY in 2022, and ~73% in the back half of the year," Nance commented. "While COIN recently announced a significant restructuring, laying off 18% of its workforce, we believe further cuts are needed, as the announced cost reduction effort merely brings headcount back to end-1Q22 levels and resulted in COIN moving to the low end of its previous expense guidance."

With costs accounting for more and more of revenue, the analyst added that Coinbase faces a difficult choice between shareholder dilution and significant reductions in effective employee compensation. Further, they are incrementally more bearish on the competitive environment and the outlook for fee rate compression given the announced merging of the Coinbase and Coinbase Pro platforms. While they are not too concerned about the recent announcement by Binance.US to reduce fees on Bitcoin pairs on its exchange, it reinforces the bear thesis on fee rate compression over time and likely adds to the longer-term concerns around pricing.

With the Robinhood upgrade, the analyst set a $9.50 price target down from $11.50, which suggests a 19% upside. Nance notes shares have underperformed significantly since their downgrade, and they now see a more balanced risk-reward. While fundamentals are still "very weak," the analyst notes that the market cap is just ~$6.5 billion versus its cash position of ~$6.2 billion and tangible book value of ~$7 billion.

"While we still expect a cash/net income burn to put some pressure on these items, which we view as soft valuation floors, we believe that higher interest rates are likely to drive a significant acceleration in net interest income over the next several quarters and help reduce HOOD’s losses to a manageable level," the analyst added. "Thus, we think shares are likely to remain range bound in the near term and see 19% upside to our price target over 12 months."

Longer-term they believe HOOD needs to see progress on more recurring revenue streams and a return to user growth and engagement levels for shares to outperform.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.