Why Robinhood stock is dead money for now, according to Goldman Sachs

There is next to no reason to try and call the bottom for bruised, battered, and beaten down trading platform Robinhood, Goldman Sachs argues.

“We would look for greater confidence in the long-term growth trajectory in Robinhood’s business before becoming more constructive,” Goldman Sachs analyst Will Nance opined in a note to clients on Thursday.

Nance reiterated a neutral rating on Robinhood stock.

Robinhood’s second quarter — and news it will lay off 23% of its staff — underscored how fast the trading platform has fallen from its much-hyped 2021 IPO and why the Street mostly hates the stock.

Transaction-based sales tanked 7% from the first quarter. Sales from options and stock transactions fell 11% and 19%, respectively, as the volatile market backdrop spooked retail investors. The company lost a whopping $80 million on an adjusted operating basis.

What’s more, monthly active users dropped by 1.9 million to 14 million and assets under custody plunged 31% sequentially.

Goldman’s Nance did praise Robinhood for cutting costs, which may improve its earnings power later this year.

“We think the street is likely underestimating the tailwinds behind [net investment income] over the next year, which should improve profitability significantly, and the company is also taking very significant actions on the cost side, which we believe should help rebuild confidence among investors around the company hitting their near-term profitability targets,” Nance said.

Electronic screens in New York’s Times Square announce the Robinhood IPO, Thursday, July 29, 2021. Robinhood has already changed how people trade stocks and who’s doing it. Now its sights are on the rest of the financial industry. (AP Photo/Mark Lennihan)

Others on Wall Street were blunter about Robinhood than Goldman, though they all generally fostered the same negative takeaway on the stock.

“The market environment remains particularly poor for Robinhood, but still the company is underperforming expectations in multiple areas,” JP Morgan analyst Ken Worthington said in a note to clients.

The analyst maintained a $7 price target on Robinhood and a sell-equivalent rating.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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