By Sam Boughedda
Citi cut its rating on brokerage Robinhood (NASDAQ:HOOD) to Neutral from Buy, lowering its price target on the stock to $10 from $11 per share in a note to clients Tuesday.
Analysts told investors that while Robinhood has done "a lot to right its ship recently," such as materially lowering the cost base, improving active trader offerings, and rolling out attractive products, Citi sees a "mixed outlook from here given potential headline risk from upcoming SEC market structure proposals, a cautious equity market outlook, and potential fallout from FTX impacting crypto trading revenues and the customer base."
On the FTX fallout, they said: "The FTX collapse/ongoing fallout has a number of potential implications for HOOD, including: 1) potential liquidation of 56.3M HOOD shares (7.4% of outstanding) owned by Sam Bankman-Fried through Emergent Fidelity Technologies, but uncertain timing, 2) removal of FTX as a potential acquiror, and 3) lower crypto trading revenues given substantial price declines and material deterioration in investor confidence. Also, we have some concerns about the impact of the price declines on the HOOD customer base, particularly active traders."
In addition, Citi expects Robinhood's crypto trading revenues to decline 50% or more in 2023, after an over 50% decline in 2022, although they do see a stable outlook for the brokerage's equities business, albeit "little growth given a choppy market outlook."
"We are constructive on the longer-term outlook given HOOD's solid balance sheet, monetization of account growth potential, and brand recognition, but near-term see a balanced risk/reward," the analysts concluded.