Coinbase vs. Robinhood: Which New-Age Broker Stock Is a Better Investment?
November 22 2021 - 6:14AM
Finscreener.org
In the last few years,
Coinbase (NASDAQ:
COIN) and Robinhood
(NASDAQ:
HOOD) have managed to onboard investors as well as
traders at a rapid clip. Coinbase is one of the
largest cryptocurrency exchange
platforms in the world
while Robinhood is a discount broker that has recently entered the
crypto-trading space.
Here, we take a look at both the
companies to see which stock is a better investment right
now.
The bull case for Coinbase
Coinbase stock is down 10% from
all-time highs after the company reported less than impressive Q3
results last week. In the quarter ended in September 2021, Coinbase
reported sales of $1.3 billion, indicating a sequential decline of
41% while its net income stood at $406 million or $1.56 per share.
Comparatively, Wall Street forecast Q3 sales at $1.6 billion for
Coinbase.
The company’s monthly transacting
users decline to 7.4 million in Q3, compared to 8.8 million in Q2
as trading volume slumped by 29% to $327 billion.
Several cryptocurrencies lost
momentum in the first half of Q3 which impacted trading volumes
resulting in lower sequential sales and profits.
But investors should note that
Coinbase remains a top long-term bet given it has increased sales
from $533 million in 2019 to $1.27 billion in 2020. Sales are
forecast to touch $7.27 billion this year, indicating a year over
year increase of more than 500%.
Coinbase also benefits from
higher operating leverage as its operating income rose to $409
million in 2020 compared to a loss of $35.5 million in 2019. In the
last 12-months, its operating income has surged to $2.38 billion,
allowing the company to generate $300 million in cash flows in
Q3.
Another massive revenue driver
for Coinbase will be the launch of an NFT marketplace that will
operate on the Ethereum blockchain. Coinbase confirmed that 2.5
million users have signed up for NFT updates and this could easily
become a larger revenue driver for the company, compared to
trading.
However, investing in Coinbase
carries certain risks. The platform remains dependent on the two
largest cryptocurrencies in Bitcoin and Ethereum that accounted for
more than 40% of trading volume in Q3.
COIN stock is valued at a forward
price to sales multiple of less than 12x and a price to earnings
multiple of just 23.6x which is very reasonable.
The bear case for Robinhood
The COVID-19 pandemic acted as a
significant tailwind for Robinhood that managed to attract several
first-time traders on its platform. In Q3,
Robinhood’s sales rose
by 35% year over year to $365
million but it was well below Wall Street estimates of $431.5
million. Revenue was also below Q2 sales of $565 million, dragging
HOOD stock lower in recent trading sessions. Robinhood shares are
in fact trading near record lows and are down 57% from all-time
highs.
Another worrying factor for
Robinhood investors was the company’s net loss of $1.32 billion or
$2.06 per share compared to a net loss of just $11 million in the
year-ago period. Analysts estimated Robinhood’s Q3 losses at $0.69
per share. Further, it reported an adjusted EBITDA loss of $84
million compared to a profit of $59 million in the same period in
2020.
Robinhood has successfully
disrupted the traditional brokerage market and has also expanded
into the crypto trading space. In 2020, its revenue rose more than
tripled to $959 million while its monthly active users rose to 11.7
million. It ended Q3 with a user base of 18.9 million but its
revenue growth has decelerated significantly as its average revenue
per user fell by 36% year over year to $65.
The verdict
Right now, Robinhood is valued at
a forward price to sales multiple of 14x and is still unprofitable
even on an adjusted basis. Coinbase’s widening revenue base and
stellar profit margins coupled with an attractive valuation makes
it a better bet right now.
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