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

It would be funny – if it weren’t so serious – how this stuff implodes and Wall Street that created it now washes its hands with it.

Of Wolf Richter to the WOLF ROAD.

Back 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 enormous fanfare. The lead underwriter’s job is to orchestrate this hoopla and create demand for the stocks at ridiculous valuations, and they’ve done a great job at it. It came amid the meme stock trading mania that Robinhood was geared towards and the crypto trading that Robinhood was into.

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

The collapse in the stock price over those eight months was spectacular, right there with that Collapse of the EV SPACS and other creatures of our time. Shares are now 87% below the high and 70% below the IPO price (data via YCharts):

And this is the moment, after the stock plummeted 87% from its peak and hurt nearly every retail investor who has touched these failed stocks since Aug. 3, that Goldman Sachs, in its usual impeccable timing, lowered its rating from ” neutral” lowered to “sell”. and lower the target price to $13 per share.

Goldman analyst William Nance cited “dwindling exposure to retail” and continued weakness in account growth and dwindling hopes of profitability.

In 2021, Robinhood had a net loss of $3.7 billion on sales of $1.8 billion. Which was fascinating – how a brokerage platform could post such huge losses of twice its earnings during one of the craziest stock and crypto trades of all time.

Robinhood is unlikely to become profitable in 2023 given current trends and headwinds, Nance said. “We believe this lack of clarity about the path to profitability will prevent the stock from making a higher valuation.” an upgrade to neutral or whatever, Goldman should “see an acceleration in user growth.”

So user growth is “subdued” and it could take longer to reach profitability, if ever, and that’s suddenly the problem for Goldman, not last year’s $3.7 billion loss or the ridiculously high one Pump and dump IPO price from just eight months ago.

Robinhood tried to spur growth by announcing in March that it would be extending its trading hours, eventually introducing 24-hour trading. But trading isn’t fun if the things being traded aren’t going up. And many of the stocks traded between Zoom meetings and actual work by avid meme traders and home workers have made up what is now the vast inventory of stocks imploded sharesincluding Zoom itself, which is down 75%, and Robinhood, which is down 87%.

It would be funny – if it weren’t so serious – how this stuff implodes and Wall Street that created it now washes its hands with it.

While Robinhood’s cryptocurrency trading shows “much better” economics, Nance wrote, the recent drop in trading volume is a concern.

Why sure. It’s also no fun trading cryptos when cryptos are being beaten up. Bitcoin is currently down 26% year-on-year and down 36% from the November high. Crypto trading is only fun when this stuff goes up. And having fun is what the Robinhood platform is all about. Put your stimulus checks and PPP loans into trading meme stocks and cryptos and have a blast becoming a multi-millionaire in no time.

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