(Boursier.com) — robinhood stalled before trading on Wall Street following a downgrade from ‘neutral’ to ‘sell’ by Goldman Sachs. The bank believes the online brokerage is facing headwinds as retail investors become less engaged in the stock market. This drop in engagement is showing up, as stocks enter a long period of losses and the effects of stimulus checks fade. “As the benefits of the stimulus wane and the impacts of higher gas prices and inflation ripple through the economy, we believe Robinhood could continue to see higher levels of churn,” Goldman said.
The bank does not see Robinhood reaching profitability in 2023, given its recent growth trends, as new account openings slow. Additionally, accounts at Robinhood are generally for smaller investors who are just getting started, with an average account size hovering around $4,000. This is a far cry from other brokerage firms like Charles Schwab and Interactive Brokers, both of which have average account sizes measured in the hundreds of thousands of dollars…Robinhood has little valuation support given its lack of profitability and the slowdown in its growth, while its market capitalization is around 11 billion dollars.
“The lack of a clear path to profitability in an environment increasingly skeptical of valuing unprofitable fintech on a multiple-of-revenue basis limits the path for near-term revaluation,” GS summarizes.
Robinhood could still surprise if it communicates a clear path to consistent profits, shows potential for customer acquisition on new products, and supports higher user growth. Robinhood starts rolling out a ‘crypto’ wallet. Nearly 2 million customers on Robinhood’s WenWallets waiting list will be able to send and receive cryptocurrencies as well as purchase non-fungible tokens (NFTs). But for now, that’s not enough to convince GS, which has set a price target of $13.
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