Crypto winter has had a cooling effect on Coinbase and Robinhood

by Arthur · July 4, 2022

Nance attributed the downgrade to “the continued decline in cryptocurrencies and the resulting fall in industry activity levels.” He added that recent layoffs in the company may not mark the end of the pink tie either.

“We believe there is a need for further cuts, as the announced cost reduction effort only brings the number of employees back to the levels by the end of 1Q22,” Nance wrote, adding that Coinbase “will have to make significant cost base reductions to stop the resulting cash burn. retail activity is drying up. ”

Nance estimates that Coinbase’s revenue will fall more than 60% this year compared to 2021.

Robinhood gathers around M&A hope

Meanwhile, Robinhood has fallen almost 50% so far this year, leading to speculation that the company, which was listed last year, could be a takeover target for the red-hot privately owned crypto unicorn FTX, which has a value of 32 billion dollars.

Bloomberg reported on Monday that FTX, led by 30-year-old billionaire Sam Bankman-Fried, is considering a possible deal for Robinhood. Shares in Robinhood rose 14% on the news.

Robinhood had no comment on Monday’s Bloomberg report. Bankman-Fried said in a statement to CNN Business that “there are no active M&A talks with Robinhood”, although FTX is “excited about Robinhood’s business prospects and possible ways we can work with them”. Shares in Robinhood withdrew on Tuesday.

Bankman-Fried revealed in May that he had bought a 7.6% stake in Robinhood.

In a document from the Securities and Exchange Commission at the time, Bankman-Fried said he believes Robinhood shares “represent an attractive investment”, but noted that his stake is meant to be a passive investment and that he “currently has none intention to take action to change or influence the control of Robinhood. “

The digital trading platform has struggled since it was listed last year, and the stock is now trading at around $ 9 per share, more than 75% below the initial stock price of $ 38 and almost 90% of the top of $ 85. The meltdown in crypto and the broader stock market – especially the implosion of so-called meme stocks – has hurt Robinhood.

Robinhood has suffered losses since its listing and is expected to continue to report red ink for the rest of this year and 2023. Revenues have fallen this year as well. And Robinhood has, like Coinbase, announced layoffs.

Still, some on Wall Street continue to express optimism about Robinhood’s future.

Analysts at Mizuho Americas wrote in a report on Tuesday that if an agreement with FTX were to be realized, it would help Robinhood “expand its reach and breadth.” Mizuho analysts added that they also believe Robinhood “can survive and thrive on its own.”

And Goldman Sachs’ Nance said in Monday’s Coinbase report that he upgraded Robinhood to a “neutral” from a “sell”.

Nance’s reason for pushing upwards? Robinhood’s market value was around $ 6.5 billion before Monday’s FTX reputation-based stock pop, just slightly higher than $ 6.2 billion in cash on the balance sheet, indicating a limited downside.

But he added that Robinhood’s “basic characteristics are still very weak … as continued declines in retail risk appetite have weighed on active users.”