Robinhood Markets Inc.’s turnaround efforts are likely to grate up against the implosion of crypto exchange FTX and the broader cryptocurrency market, one analyst said late Monday, shortly before the U.S. charged FTX founder Sam Bankman-Fried with multiple counts of fraud.
That analyst, Citigroup’s Christopher Allen, downgraded Robinhood HOOD, -2.40% to neutral from buy and lowered the price target on shares of the popular stock-trading app to $ 10 from $ 11. Shares of Robinhood were down around 2.4% on Tuesday.
Allen said Robinhood had cut costs and made its platform more attractive to active traders. But he said uncertainty surrounding the stock market next year, as well as the cratering of the crypto market, made for a “mixed outlook” on the company.
Allen said that following last year’s meme-stocks frenzy, trading activity on Robinhood has cooled. He said “a sustained move higher in equity markets” — something that is far from guaranteed next year — would be needed to spur stronger trading activity.
While stock trading on Robinhood has been stable in recent months, the analyst said he expected Robinhood’s crypto-trading revenue to drop at least 50% for both this year and next year. And he said the shockwaves from FTX’s collapse could ripple through to Robinhood in a variety of ways.
One, he said, was the potential liquidation of the 56.3 million Robinhood shares — or 7.4% of its outstanding stock — owned by Bankman-Fried, FTX’s founder and former chief executive, through Emergent Fidelity Technologies. The timing of that liquidation, Allen said, was not yet clear.
Allen said the scrutiny of FTX also removed it as a potential buyer of Robinhood. And the fallout raised the possibility of lower trading revenues for Robinhood’s crypto segment, “given substantial price declines and material deterioration in investor confidence.”
Analysts have offered similar assessments for crypto exchange Coinbase Global Inc.
Bank of America, in a note last month, said that while Coinbase COIN, -9.18% was unlikely to be “another FTX,” it still faced “a number of new headwinds over the near/medium term due to the recent collapse of rival crypto exchange FTX.” Needham analyst John Todaro also said Coinbase wasn’t immune to possible “contagion” from FTX’s downfall, while noting it had “little direct exposure” to FTX.
Bankman-Fried was arrested in the Bahamas on Monday. On Tuesday, the U.S. attorney’s office of the Southern District of New York charged him with wire fraud against customers and lenders, commodities and securities fraud, money laundering, and defrauding the U.S.
The Securities and Exchange Commission on Tuesday also charged Bankman-Fried with defrauding investors, accusing him of steering FTX users’ money to Alameda Research — a trading firm he co-founded in 2017 — and trying to conceal the diversion of the funds.
FTX, launched in 2019 and based in the Bahamas, filed for bankruptcy protection last month after revelations from the crypto news site Coindesk about Alameda’s shaky finances — and the degree to which it was intertwined with FTX — prompted a run on the exchange. Binance, a large rival crypto-trading platform, opted not to move forward with a bailout of FTX.
Robinhood stock has fallen 47% so far this year, and Coinbase has tumbled 84%. In comparison, the S&P 500 SPX, +0.73% is down 16% over that time.