Goldman Sachs Will Nance argues there are too many headwinds facing Robinhood’s goal of turning a profit next year.
Robinhood Markets (HOOD) – Get Robinhood Markets, Inc. Class A Report shares tumbled Friday after analysts at Goldman Sachs cut their rating on the retail trading platform to sell, arguing the group could struggle to reach its goal of turning a profit by next year.
Goldman Sachs analyst Will Nance lowered his rating on Robinhood to ‘sell’, from ‘neutral’, while cutting his prive target by $2, to $13 a share, citing “fading retail engagement” and weakening growth in adding new accounts.
Robinhood moved to arrest its declining revenue growth late last month with the extension of its trading day from 7 am eastern to 8 am eastern and plans to introduce 24-hour trading on its retail platform that would give customers “unprecedented access to the financial markets.”
“We believe this lack of clarity around the path to profitability will prevent the stock from re-rating higher,” Nance said, adding that headwinds to profitability in 2023 require solid macro-economic tailwinds and organic revenue growth of more than 10%.
“In the near term, intra-quarter app download data suggests user growth has remained depressed, and we see an acceleration in user growth as a key requirement for shares to re-rate higher,” Nance added. “Additionally, while the company has negotiated much better economics on crypto trading, we see the decline in broader industry crypto volumes largely offsetting this tailwind.”
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Robinhood shares were marked 3.9% lower in pre-market trading to indicate an opening bell price of $11.60 each, a move that would extend the stock’s year-to-date decline to around 37%.
Robinhood, which found itself at the center of the meme-stock controversy last year when it froze access to certain customer accounts, said March quarter revenues would fall below $340 million, likely as a result of lower equity and cryptocurrency trading volumes.
For the three months ending in December, Robinhood had a net loss of $423 million on revenues of $363 million, with compensation expenses eating into its bottom line and monthly active users falling 8% from the three months ending in September.
