Why Goldman Sachs Has Upgraded Robinhood, Downgraded Coinbase

As the 2022 crypto winter carries into the second half of the year, one major Wall Street firm has adjusted its coverage of popular crypto platforms Robinhood Markets Inc HOOD and Coinbase Global Inc COIN.

The Analyst: Goldman Sachs analyst Will Nance has downgraded Coinbase from Neutral to Sell and cut his price target from $70 to $45. Nance also upgraded Robinhood from Sell to Neutral and cut his price target from $11.50 to $9.50.

The Thesis: In his note, Nance said slumping crypto prices will continue to weigh on Coinbase's revenue which he projects will drop 61% in 2022 and 73% in the second half of the year.

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"From a valuation standpoint, with COIN trading at an ~$11.5bn market cap relative to its ~$3.8bn net cash position as of 1Q22 (which includes ~$1.3bn in crypto assets where we expect a significant impairment in 2Q based on current prices), we believe valuation support is limited as (1) higher revenues in the near term would require higher crypto prices and volatility and (2) we forecast breakeven to negative adjusted EBITDA over the next several years," Nance said.

For Robinhood, Nance said the significant weakness in the stock so far this year has brought its valuation down to an appropriate level. Nance said Robinhood's fundamentals remain weak, but higher interest rates should boost the company's net interest income in the next several quarters, helping to mitigate declines in retail trading activity.

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Benzinga's Take: For Robinhood dip-buyers, pairing a long position in HOOD with a short position in Coinbase could be a way to play a rebound in Robinhood while limiting downside risk in the event the crypto sell-off continues

Incredibly, a little over a year after Coinbase's April 2021 IPO, Goldman's current price target is down more than 85% from its initial May 2021 target of $306

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