After Robinhood shares crash 87% from peak and 70% from IPO, lead underwriter Goldman Sachs cuts shares to “sell”

It would be funny – if you weren’t serious – how this stuff explodes, Wall Street, which you created, is washing its hands now.

by Wolf Richter to Wolf Street.

In December 2020, Robinhood Markets selected Goldman Sachs and JP Morgan as the lead offering companies for its initial public offering. Then on August 3, 2021, just eight months earlier, Robinhood went public at $38 a share, giving the company a valuation of $32 billion, amid massive fuss. The main guarantor’s job is to create this nonsense and create demand for stocks with ridiculous valuations, and they’ve done a great job at that. It came amid the stock trading meme craze that Robinhood was making ends meet, and the cryptocurrency trading that Robinhood was getting into.

But on the first day of trading, July 29, 2021, the shares closed below the IPO price. Over the next few days, the stock zigzagged higher, and on August 4, it momentarily soared in an incredible frenzy to $80 a share, and that was it.

The stock price crash during those 8 months was amazing, right there with The collapse of space space and other creatures of our time. Shares are now 87% off their highs and 70% off their IPO price (data via YCharts):

And here’s the moment, after the stock collapsed 87% from its high and hit nearly every retail investor touching these stocks that haven’t traded since August 3, Goldman Sachs, in its usual flawless timing, cut its rating to “sell” from “neutral” from “neutral”. And he lowered his target price to $13 per share.

Goldman Sachs analyst William Nance pointed to “fading retail participation”, persistent weak account growth and fading hopes for profitability.

In 2021, Robinhood incurred a net loss of $3.7 billion, and revenue of $1.8 billion. Which is amazing – how can a brokerage platform generate such huge losses to double its revenue during some of the craziest stock and currency trading ever.

Nance said Robinhood is unlikely to become profitable in 2023, based on current trends and headwinds. “We believe this lack of clarity about the path to profitability will prevent the stock from re-rating higher.” There is a “key requirement” to revalue the stock to a higher level, such as upgrading to neutral, or something else, Goldman would need to “see an acceleration in user growth.”

So user growth is “weak”, and it could take longer to reach profitability, that’s if that happens, and that’s suddenly Goldman’s problem, not the $3.7 billion loss last year, or the ridiculously high IPO price of eight Just months ago.

Robinhood attempted to boost growth by announcing in March that it would extend its trading hours and eventually offer 24-hour trading. But trading is not fun unless the things that are being traded go up. And many of the stocks that are traded by enthusiastic meme traders and work from homeowners between Zoom meetings and actual work have now made up the huge body of exploding stocksincluding Zoom itself, which collapsed at 75%, and Robinhood, which collapsed at 87%.

It would be funny – if you weren’t serious – how this stuff explodes, Wall Street, which you created, is washing its hands now.

While Robinhood’s cryptocurrency trading has “much better” economics, Nance wrote, the recent drop in trading volumes is a problem.

Why sure. It is not fun to trade cryptocurrencies when cryptocurrencies are taking a beating. Bitcoin is currently down 26% year over year and down 36% from its November high. Cryptocurrency trading is only fun when these things go up. And fun is what Robinhood is all about. Transfer stimulus checks and PPP loans to meem trading stocks and cryptocurrencies and have loads of fun becoming a millionaire in no time.

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