Robinhood co-founders Vlad Tenev and Baiju Bhatt.

Goldman Sachs downgraded Robinhood to a sell rating nearly three weeks before the trading app announced a plan to lay off workers. 
The investment bank highlighted three areas of concern surrounding the platform used by many young retail investors. 
Robinhood reports first-quarter results after the close Thursday. 

Robinhood’s plan to let go of about 9% of its workforce underscored a slowdown at the retail investing platform that Goldman Sachs noted earlier this month in a note downgrading the stock. 

The issues Goldman raised weeks ago have gained more salience as Robinhood is due to release first-quarter financial results late Thursday, on the heels of its plan to cut more than 300 workers. The announcement from CEO Vlad Tenev spurred a stock selloff Wednesday that ended with the lowest closing price since the company went public in July 2021. 

“We believe softening retail engagement levels (particularly among the low-end consumer), continued weakness in account growth, and a limited path to near term profitability are likely to limit outperformance over the next twelve months,” Goldman Sachs analyst Will Nance wrote in an April 8 research note downgrading Robinhood to a sell rating from neutral, with a 12-month price target of $13. 

The trading app at the center of last year’s meme-stock rally featuring GameStop and AMC  is expected to post a narrower loss of $0.38 a share on a 32% revenue decline to $355 million.  Investors will also watch for its update on monthly active users, a metric that fell 8% sequentially in the fourth quarter to 17.3 million. 

Here are three issues of concern about Robinhood outlined by Goldman’s Nance earlier this month:

1) Unlikely to reach profitability in 2023 given recent growth trends

Robinhood had adjusted EBITDA margins of 2% in 2021 and forecast 15% to 20% growth in adjusted expenses in 2022. Goldman estimated the company needs to see revenue growth of about 30%, or a 14% compound annual growth rate off of its fourth-quarter annualized runrate, “which we believe is a relatively high bar given recent account growth trends,” the investment bank said. “With the Street currently forecasting Adjusted EBITDA margins around 5% in 2023, we believe a resetting in expectations could lead to underperformance.” 

2) Pressure on low-end consumers could lead to underperformance versus other brokers

Goldman said Robinhood’s trading results have underperformed brokerage peers for two quarters as it believes a large …read more

Source:: Business Insider


A Goldman analyst foresaw Robinhood’s growth woes weeks ago and downgraded the stock. Here are the 3 lingering issues he pinpointed.

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