Goldman downgrades Coinbase, upgrades Robinhood amid crypto volatility
Global crypto market's total capitalization has fallen below $1T, off its 2021 high of approximately $2.8T
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Goldman Sachs downgraded Coinbase from a neutral to sell rating and slashed its 12-month price target to $45 per share from $70 as the investment bank expects the company's revenue troubles to get worse amid continued volatility in the cryptocurrency market.
"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," Goldman analysts wrote in a note to clients on Monday.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| COIN | COINBASE GLOBAL INC. | 312.22 | +7.58 | +2.49% |
Though Coinbase recently laid off 18% of its workforce, Goldman argues that further cuts are needed to stem the company's cash burn as retail trading activity dries up, noting its current reduction will only bring headcount back to levels seen toward the end of the first quarter.
"We believe COIN faces a difficult choice between shareholder dilution and significant reductions in effective employee compensation, which could impact talent retention," the analysts add.
In addition, Goldman has become "incrementally more bearish" on the company's ability to compete following the announced merger of Coinbase and Coinbase Pro, a move that could "reduce switching cost friction between the two platforms and potentially lead to fee rate compression."
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Meanwhile, Goldman upgraded Robinhood Markets Inc. from a "sell" to a "neutral" rating, citing a "more balanced risk reward," but lowered its 12-month price target to $9.50 per share from $11.
"Fundamentals are still very weak for HOOD, in our view, as continued declines in retail trading risk appetite have weighed on active users and margin balances. "However, shares are now trading at an ~$6.5bn market cap versus its cash position of ~$6.2bn and tangible book value of ~$7bn," the analysts said.
"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."
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| HOOD | ROBINHOOD MARKETS INC. | 37.59 | +1.17 | +3.21% |
Goldman expects Robinhood's shares to remain range bound in the near term and sees a 19% upside to its price target over the next 12 months. It notes that the company needs to progress on more recurring revenue streams and see a return to user growth and engagement levels in order for shares to outperform over the long term.
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Goldman's moves come as the total market capitalization of the global crypto market has fallen below $1 trillion, off its 2021 high of approximately $2.8 trillion.