Over the last year, Robinhood Markets and Coinbase Global have had to weather the storm, with steep drops in asset prices deterring the retail investors that both brokers see as crucial to their client bases.
However, Robinhood (HOOD) has things that Coinbase (COIN) does not, which Mizuho Securities believes will benefit the stock.
Coinbase, which concentrates on digital assets, has been chilled to the bone by the crypto winter, predicting a $500 million loss for 2022. Retail investors attracted by the previous bull market have been frightened as Bitcoin and other cryptocurrencies dropped around two-thirds of their value last year. Less trading implies less income for brokers like Coinbase and Robinhood.
According to Mizuho Securities analysts led by Dan Dolev, Robinhood is projected to post a small fall in crypto trading volumes for the fourth quarter. The company decreased its forecast for Robinhood’s quarterly crypto-related income on Wednesday by $6 million to $40 million.
Both corporations are diversifying. Coinbase is expanding chances for investors to earn a return on their crypto assets, while Robinhood is launching a retirement product.
However, trading is the primary business of both firms. While Coinbase focuses on cryptocurrencies, Robinhood is a big arena for individual investors to buy and sell stocks and options. This should help it generate stronger earnings in 2022 than Mizuho anticipated.
“Our detailed analysis of Robinhood’s revenue streams shows a modest upside to our previous 4Q 2022 estimates,” Dolev’s team said. “We expect the upside to arise from better than expected options trading volumes paired with higher net interest revenues, somewhat offset by lower crypto trading volumes.”
While it appears that crypto trading volumes declined near the end of last year and stock trading was muted, Mizuho reports that options volumes increased significantly in the fourth quarter through December. Analysts increased their fourth-quarter sales estimate in this area by $12 million to $127 million, more than 10% more than the previous expectation.
Net interest income has also contributed. Mizuho increased its fourth-quarter revenue projections for this division by $7 million, or 5%, citing Federal Reserve interest rate hikes, the acceptance of Robinhood’s cash sweep accounts, and management’s outlook. Higher interest rates imply that Robinhood benefits more on loans, and the company also gets a fee when clients choose to have their uninvested funds swept into interest-bearing savings accounts.
“Beyond 4Q, we continue to view 2023 as a transformational year for Robinhood as it should benefit from new products, such as its new IRA offering,” according to the Mizuho experts. The group ranks Robinhood stock as Buy, with a price objective of $14, signifying a considerable increase from the company’s opening level of $9.54 on Wednesday.
The same analysts grade Coinbase as Underperform, and their price objective for the company is more than 40% lower than where the shares opened on Wednesday. According to proprietary research provided by the firm on Tuesday, retail investors suggested continuing to avoid crypto.