After Robinhood shares tumble 87% since peak and 70% since IPO, IPO lead underwriter Goldman Sachs cuts shares to ‘sell’

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It would be funny – if it weren’t so bad – how this thing imploded, and Wall Street, which created it, is now washing its hands of it.

By Wolf Richter for WOLF STREET.

In December 2020, Robinhood Markets selected Goldman Sachs and JP Morgan as lead underwriters for its IPO. Then, on August 3, 2021, just eight months ago, Robinhood went public at an IPO price of $38 per share, giving the company a valuation of $32 billion, amid a huge hype. The lead underwriter’s job is to create that hype and create demand for stocks at ridiculous valuations, and they’ve done a great job of that. This happened amidst the meme stock trading mania that Robinhood catered to and the crypto 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 soared higher, and on August 4, it peaked in an incredible meme stock climax at $80 per share, and that was it.

The stock price crash in those eight months has been dramatic, right there with the crash of EV SPACS and other creatures of our times. The shares are now down 87% from the high and 70% from the IPO price (data via YCharts):

And this is the moment, after the stock has crashed 87% from its peak and crippled nearly every retail investor who has touched those ill-conceived stocks since August 3, that Goldman Sachs, with its usual impeccable timing, reduced its rating to “sell” from “neutral,” cut the price target to $13 per share and washed its hands of it.

Goldman analyst William Nance cited “diminishing retail engagement” and continued weakness in account growth and fading hopes of profitability.

In 2021, Robinhood posted a net loss of $3.7 billion, on $1.8 billion in revenue. Which was fascinating – how a brokerage platform could generate such huge losses of twice its revenue on some of the craziest stock and crypto trades ever.

Robinhood is unlikely to become profitable in 2023, based on current trends and headwinds, Nance said. “We believe this lack of clarity around the path to profitability will prevent the stock from repricing higher.” A “key requirement” for stocks to be repriced higher, such as an upgrade to neutral, or whatever, Goldman would need to “see accelerated user growth.”

So user growth is ‘depressed’ and it could take longer to reach profitability, if ever, and that’s suddenly Goldman’s problem, not last year’s $3.7 billion loss, or the ridiculously high price of the pump-and-dump IPO just eight months ago.

Robinhood tried to spur growth by announcing in March that it would extend its trading hours and eventually introduce 24-hour trading. But trading isn’t fun unless the things being traded are going up. And many stocks traded by enthusiastic meme traders and homeworkers between Zoom meetings and actual work formed the now large set of imploded stocks, including Zoom itself, which crashed 75% , and Robinhood which collapsed by 87%.

It would be funny – if it weren’t so bad – how this thing imploded, and Wall Street, which created it, is now washing its hands of it.

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

Why of course. Nor is it fun to trade cryptos when the cryptos are beaten. Bitcoin is currently down 26% year over year and down 36% from the November high. Crypto trading is only fun when this stuff increases. And fun is what the Robinhood platform is all about. Sink your stimulus checks and PPP loans into meme and crypto stock trading and have a ton of fun becoming a multi-millionaire in no time.

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