Opinion: Here’s why Coinbase should acquire Robinhood

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on May 10, 2024
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  • Coinbase published strong financial results, helped by the crypto boom.
  • Robinhood also published strong quarterly results as stocks rose.
  • Coinbase would benefit from acquiring Robinhood by diversifying into stocks.

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Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) stock prices are in a recovery mode after plunging hard between late 2021 and 2023. Robinhood’s shares have surged by 129% from its lowest point in 2022 while COIN has soared by over 510%. 

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COIN vs HOOD

HOOD vs COIN stocks

Robinhood and Coinbase are great companies

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Coinbase and Robinhood are some of the most popular fintech companies among young people in the United States. Robinhood has completely revolutionised the stock brokerage industry, first by introducing commission-free trading and 24-hour trading. 

Coinbase, on the other hand, is the biggest crypto exchange in the US, handling billions of dollars in trades each day. It is overseen by the Securities and Exchange Commission (SEC) and audited by Deloitte.

I believe that Coinbase should acquire Robinhood, a deal that would create a financial services behemoth with almost $5 billion in annual revenue. It would also have over $300 billion in assets under custody (AUC).

Coinbase can easily afford to handle the transaction. It has a market cap of $50 billion while Robinhood is valued at about $14.5 billion. It also has over $6.7 bilion in cash and short-term investments and about $4.2 billion in long-term debt.

As such, the company can fund the transaction through a combination of stock, cash on hand, and borrowings. 

Why the COIN and HOOD merger makes senes

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The combination would be ideal for three main reasons. First, Coinbase and Robinhood would have significant synergies, especially in the technology side of things. The two companies would be able to share developers since their services are complementary.

While Robinhood is known for stock trading, it is also a big player in the crypto industry. The most recent results revealed that Robinhood’s crypto trading volume rose by 224% to over $36 billion in crypto trading volumes. 

Second, acquiring Robinhood would help Coinbase deal with the seasonal nature of the crypto industry. History shows that digital coins go through prolonged periods of ‘winter’ and ‘summer’, a situation that hurts Coinbase and other exchanges.

For example, while cryptocurrency volume surged in Q1, data shows that it has tumbled hard now that Bitcoin has gone nowhere in the past three months. 

Third, the combination would help the two combinies grow their recurring revenue. Robinhood’s gold product generated $35 million in revenue while Coinbase’s subscription and services revenue soared to over $510 million.

The deal would also benefit Robinhood, a company that competes with behemoths like Fidelity, Schwab, and Morgan Stanley through its E-Trade brand. 

To be clear: Coinbase and Robinhood have not announced plans to combine and it is unclear whether the latter would be open to a buyout.

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