Robinhood Inventory’s Benefit Over Coinbase in a Crypto Winter

Coinbase, which focuses on digital belongings, has been chilled to the bone by the “crypto winter,” telegraphing to the market what could also be a $500 million loss for 2022. As
Bitcoin
and different cryptocurrencies misplaced about two-thirds of their worth final yr, retail traders drawn in by the prior bull market have been scared off. For brokers like Coinbase and Robinhood, much less buying and selling means much less income.

Robinhood is prone to report a slight decline in crypto buying and selling volumes in the course of the fourth quarter, in response to analysts led by Dan Dolev at Mizuho Securities. The agency lowered its estimate of Robinhood’s quarterly crypto-related income by $6 million to $40 million on Wednesday. 

Each firms are increasing into different areas. Coinbase is pushing into alternatives for traders to earn yield on their crypto holdings, and Robinhood will launch a retirement product.

However the core enterprise at each brokers is buying and selling. Whereas Coinbase is coin-focused, Robinhood not solely acts as a crypto buying and selling platform, it is usually a significant venue for retail traders to purchase and promote shares and choices. This could assist it ship higher outcomes to shut out 2022 than Mizuho as soon as thought.

“Our detailed evaluation of Robinhood’s income streams reveals modest upside to our earlier 4Q 2022 estimates,” Dolev’s group stated. “We count on the upside to come up from higher than anticipated choices buying and selling volumes paired with greater web curiosity revenues, considerably offset by decrease crypto buying and selling volumes.”

Certainly, whereas it appears to be like like crypto buying and selling volumes fell towards the top of final yr and inventory buying and selling was muted, choices volumes “improved notably” within the fourth quarter via December, in response to Mizuho. The analysts bumped up their estimate for income on this phase by $12 million for the fourth quarter to $127 million, greater than 10% above the prior forecast.

Internet curiosity income has helped, too. Mizuho raised its estimates for gross sales on this phase by $7 million, or 5%, for the fourth quarter, citing Federal Reserve choices to lift rates of interest, the adoption of Robinhood’s money sweep accounts, and administration’s outlook. Larger rates of interest imply Robinhood earnings extra from loans, and the group additionally earns a price when prospects choose to have their uninvested money swept into interest-bearing financial savings accounts.

“Past 4Q, we proceed to view 2023 as a transformational yr for Robinhood because it ought to profit from new merchandise, reminiscent of its new IRA providing,” the Mizuho analysts stated. The group charges Robinhood inventory at Purchase with a goal of $14 for the worth, implying a big acquire from Wednesday’s opening degree of $9.54.

The identical analysts fee Coinbase at Underperform, and their goal for the inventory value is greater than 40% under the place the shares opened on Wednesday. Proprietary analysis the agency cited Tuesday means that retail traders proceed to shrink back from crypto.

Write to Jack Denton at [email protected]