Coinbase Downgraded to Sell at Goldman on Further Downside Risk, Robinhood Upgraded to Neutral on Better Risk-Reward

June 27, 2022 6:45 AM EDT
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Price: $93.05 +4.67%

Rating Summary:
    15 Buy, 8 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 18 | Down: 53 | New: 12
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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 ~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 given Binance.US, 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 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 ~$6.5bn versus its cash position of ~$6.2bn and tangible book value of ~$7bn.

"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.

By Staff

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