According to Fortune Business Insights, the global online trading platform market is expected to reach $12.16 billion, growing at a CAGR of 5.1% between 2021 and 2028. This growth is projected to be fueled by the increasing demand for customized trading platforms from end-users and the integration of AI-based chatbot services. So, both Coinbase Global (COIN) and Robinhood Markets (HOOD) should benefit in the long term.
COIN is the largest cryptocurrency exchange in the U.S. The company offers financial infrastructure, technology, and other crypto-related services for the crypto economy. HOOD is a California-based company that operates as a financial services platform in the US, allowing its users to invest in stocks, options, crypto, ETFs, and gold.
Today I’ll analyze and compare COIN and HOOD to determine which stock currently presents a better buying opportunity. Over the past six months, shares of COIN have slid 3% and HOOD has plunged 52% over the same period.
Recent Developments
On January 6th, Bank of America upgraded Coinbase to “Buy” from “Neutral,” remaining its price target unchanged at $340. Bank of America analyst Jason Kupferberg sees a revenue diversification tendency and expects this trend to accelerate in 2022. More precisely, the analyst expects subscription and services revenue will expand to 16% in 2023, up from 12% as of 3Q2021. The higher revenue diversification should be achieved due to such offerings as staking, earn campaign, NFT platform, and decentralized finance products.
On December 30th, Robinhood announced its plans to launch the beta test phase of its crypto wallet to thousands of customers in mid-January. The company said that the crypto trading would remain commission-free. Also, Hood intends to release additional security features such as multi-factor authentication in-app and transaction checks. “We take this responsibility seriously, which is why we’re rolling out wallets methodically, and with Safety First in mind,” the company said.
Financial Overview & Analysts’ Estimates
For its fiscal third quarter ended September 30th, 2021, COIN’s revenue increased 315.9% year-over-year to $1.31 billion, driven by higher transaction revenue, which is a function of crypto asset volatility and trading volume. Consequently, increasing crypto asset volatility and higher retail trading volume supported its top-line growth. However, the company’s revenue figure failed to impress Wall Street, thus missing consensus by $270 million.
COIN's net income came in at $406.1 million, up about 400% from the prior-year period. As a result, its GAAP EPS of $1.62 topped analysts' expectations by $0.19. However, Coinbase's Adjusted EBITDA stood 46% lower on a quarter-over-quarter basis at $618 million.
For the fourth quarter, the analysts expect COIN's EPS to stand at $1.80. Additionally, a $1.89 billion average revenue estimate for the fourth quarter of 2021 indicates further improvement on a quarter-over-quarter basis.
Robinhood stock dropped about 6% in after-hours trading after reporting lower-than-expected earnings on October 26th. In Q3, total revenue has increased 35.2% year-over-year to $365 million, missing analysts estimates by $72.55 million. However, HOOD reported a GAAP EPS of ($2.06), surpassing Wall Street expectations by $0.45.
The company’s Net Cumulative Funded Accounts grew 97% to 22.4 million, compared to its year-ago value of 11.4 million. Besides, its monthly active users also rose by 76% YoY to 18.9 million. However, average revenues per user decreased 36% YoY to $65, mainly due to lower crypto activity. The company ended the quarter with an Adjusted EBITDA of ($84 million) versus $59 million as of 3Q2020.
The company’s EPS is expected to be ($0.43) in the current quarter. In addition, analysts forecast that its Q4 revenue should advance to $357.35 million.
Comparative Valuation
In terms of TTM Price/Sales, COIN is currently trading at 5.67x, which is 83% higher than HOOD, whose multiple is currently standing at 3.09x. When it comes to the FWD Price/Book multiple, COIN's P/B multiple of 9.42x is substantially higher than HOOD's 1.06x.
Bullish options trade placed on HOOD stock
During the January 11th trading session, there was a purchase of about 23,054 $20.00 February 18th call options for $0.88 per contract. Moreover, this transaction brings the total number of open contracts to 27,220 (source: barchart.com). It’s a huge, bullish bet as the open interest represents a total dollar value of about $2 million. For the buyer of the $20.00 calls to earn a profit, the stock would need to rise to around $20.88, implying approximately a 27% upside from HOOD's Tuesday closing price.
Conclusion
In my opinion, HOOD, at these levels, is a better investment than COIN. Although COIN delivered higher third-quarter revenue growth, the ongoing BTC correction could negatively affect the trading volume, leading to lower revenues in Q4. On the other hand, HOOD continues to grow its audience by releasing new features and products. In addition, HOOD looks relatively cheaper from a valuation standpoint. Finally, the recent massive bullish options bet placed on HOOD could indicate early signs of bullish momentum. Wall Street rates HOOD as a “Moderate Buy,” with an average price target of $37.36, which represents over 127% upside.
COIN shares were trading at $242.36 per share on Wednesday morning, up $5.13 (+2.16%). Year-to-date, COIN has declined -3.97%, versus a -0.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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