Better Buy: Robinhood Markets vs. Coinbase Global

Robin Hood (HOOD -1.27%) and Coinbase (PIECE OF MONEY -1.88%) were once considered disruptive fintech companies. Robinhood challenged traditional brokers with commission-free trading for stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. Coinbase has become one of the largest cryptocurrency exchanges in the world.

But today, Robinhood is trading more than 70% below its IPO price of $38 per share last August. Coinbase, which began trading at $381 per share after its direct listing last April, is now trading more than 80% below that price.

Let’s take a look at why these two fintech darlings were crushed, and whether investors should view either underperforming stock as turnaround play.

Image source: Getty Images.

A trio of unusual headwinds

Robinhood and Coinbase benefited from three unusual tailwinds in 2020 and 2021. First, the COVID-19 pandemic caused people to stay home and actively trade more stocks, options, and cryptocurrencies. Second, many of these investors used their federal stimulus checks to invest in these trading platforms.

Finally, many retail investors have invested their money in high-flying stocks and cryptocurrencies instead of more conservative investments. The Reddit-fueled rally in “meme stocks,” soaring cryptocurrency prices, and bullish comments from celebrity growth investors like Cathie Wood also sparked a FOMO (“fear of missing out”) rally that lasted until the end of 2021.

As a result, Robinhood and Coinbase both saw explosive growth in 2021. Robinhood’s revenue jumped 89% to $1.82 billion while its monthly active users (MAUs) jumped 48% to 17 ,3 million. Coinbase’s revenue soared 545% to $7.36 billion as its monthly transaction users (MTU) grew 307% to 11.4 million.

The speculative bubble bursts

But over the past six months, inflation and rising interest rates have burst this speculative bubble. These macroeconomic headwinds caused investors to shed riskier assets, like meme stocks and cryptocurrencies, and buy more conservative investments. Inflationary headwinds have also forced retail investors to hold onto their money instead of investing it in the markets, and the lack of new stimulus checks has exacerbated this slowdown.

If we look at the prices of GameStop (GME -3.56%), CMA (AMC -8.03%), Bitcoin (BTC 3.13%)and Ethereum (ETH 3.40%) this year we will see why investors have largely lost their appetite for meme stocks and cryptocurrencies.

GME Chart

Source: YCharts

That’s why Robinhood and Coinbase are both facing grueling downturns this year. In Q1 2022, Robinhood MAUs fell 10% year-over-year and 8% sequentially to 15.9 million. its average revenue per user (ARPU) fell 61% year over year to $53.

For the full year, analysts expect Robinhood’s revenue to fall 16% to $1.52 billion, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) falling from 34 million to a loss of $328 million. It is also expected to remain unprofitable based on generally accepted accounting principles (GAAP), with a net loss of $1.3 billion.

Coinbase’s MTUs were up 51% year-over-year to 9.2 million in Q1, but were still down 19% sequentially from Q4 2021. It expects to end the year with 5-15 million MTU, depending on market appetite for cryptocurrencies, but that wide range goes from a 56% year-over-year decline to a 32% growth. year to year.

Coinbase’s own expectations are vague, but analyst consensus expects its revenue to fall 41% to $4.7 billion this year, as its adjusted EBITDA declines from $4.1 billion to a loss of $151 million. They also expect it to post a GAAP loss of $1.7 billion.

Coinbase management’s outlook is even bleaker: the company expects to rack up an adjusted EBITDA loss of “approximately $500 million” for the year as it endures a “protracted and stressful scenario” .

The evaluations and the verdict

Robinhood and Coinbase look unattractive in this tough market for tech stocks, and both companies could still face significant regulatory headwinds in the future as the Securities and Exchange Commission scrutinizes the model. Robinhood’s payment for order flow (PFOF) and imposes new regulations on the cryptocurrency market.

That said, Robinhood and Coinbase still look fundamentally cheap at around 6 and 4 times this year’s sales estimates, respectively. These depressed price-to-sales ratios could make them tempting buyout targets for banks, brokerage firms, or diversified fintech companies.

Personally, I wouldn’t bet on either stock as a turnaround play at this time. But if I had to choose one over the other, I would buy Robinhood as it is more broadly diversified and not an all-inclusive bet on cryptocurrencies. If I wanted more exposure to cryptocurrencies, I would simply buy Bitcoin or Ethereum instead of investing in Coinbase’s capital-intensive business.

About Aldrich Stanley

Check Also

Disputed accounting method confirmed: “Communities of continuous life”

In general, taxable income must be computed according to the method of accounting used by …