Nance attributed the downgrade to “the continued decline in crypto prices and the resulting decline in industry activity levels.” He added that recent layoffs at the company may not mark the end of the pink slips either.
“We believe further reductions are necessary as the announced cost reduction effort only brings headcount back to end of Q1 22 levels,” Nance wrote, adding that Coinbase “will need to make substantial reductions of its cost base in order to stem the resulting consumption of cash”. as retail activity dries up.”
Nance estimates that Coinbase’s revenue will drop more than 60% this year compared to 2021.
Robinhood rallies on M&A hopes
Meanwhile, Robinhood has fallen almost 50% so far this year, suggesting that the company, which went public last year, could be a takeover target for private crypto unicorn FTX. which has a valuation of $32 billion.
Bloomberg reported on Monday that FTX, led by 30-year-old billionaire Sam Bankman-Fried, is considering a possible deal for Robinhood. Robinhood shares jumped 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 conversations with Robinhood,” even though FTX is “excited about Robinhood’s business prospects and potential ways to s ‘associate with them’. Robinhood shares fell on Tuesday.
Bankman-Fried disclosed in May that it had purchased a 7.6% stake in Robinhood.
In a filing with the Securities and Exchange Commission at the time, Bankman-Fried said he thought Robinhood shares “represented an attractive investment,” but noted that his stake was meant to be a passive investment and that he “currently had no intention of taking any action to change or influence the control of Robinhood.”
The digital trading platform has struggled since its IPO last year and its stock now trades at around $9 per share, more than 75% below its initial public offering price of $38 and nearly 90% off its high of $85. The collapse of crypto and the broader stock market — particularly the implosion of so-called meme stocks — has hurt Robinhood.
Robinhood has racked up losses since the IPO and is expected to continue to report red ink for the rest of this year and 2023. Revenues have also fallen this year. And Robinhood, 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 a deal with FTX were to materialize, it would help Robinhood “expand its reach and scale.” 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 was moving Robinhood to a “neutral” from a “sell.”
Nance’s reasoning for the push up? Robinhood’s market valuation was around $6.5 billion before Monday’s FTX rumor-fueled stock release, barely above the $6.2 billion in cash on its balance sheet, suggesting a limited downside. .
But he added that Robinhood’s “fundamentals are still very weak…as the continued decline in retail risk appetite has weighed on active users.”