Citi downgraded Robinhood Markets (HOOD) stock to ‘Neutral’ from ‘Buy’ due to potential risks from upcoming market structure proposals by the United States SEC, a cautious equity market outlook, and the impact of bankrupt-platform FTX spilling over the crypto trading revenue and client base.

The analyst stated that the timing of that is “uncertain.” It is also important to note that the implosion has removed it from the list of possible Robinhood acquirers. Citi analysts Christopher Allen and Ygal Arounian slashed his price target to $10 from $11 on HOOD shares.

Mixed Outlook

In a new research report, the analysts wrote that Robinhood has gotten many things right, such as materially lowering the cost base, improving active trader offerings, and rolling out attractive products. But they described “a mixed outlook” in the near term while detailing several “potential implications” for Robinhood stemming from FTX’s catastrophic collapse.

Citi also mentioned the “potential liquidation of 56.3 million HOOD shares (7.4% of outstanding)” owned by Sam Bankman-Fried – the disgraced chief of FTX – through Emergent Fidelity Technologies.

The duo also expects Robinhood’s revenue from crypto trading to decline by over 50% in 2023 after a similar extent of slump this year. While the latest report did forecast a stable outlook for its equities operations, significant growth may not transpire given the choppy market trend. Having said that, Allen is bullish on the options activity.

Furthermore, the analysts are also positive about Robinhood’s longer-term outlook citing the company’s “solid balance sheet, monetization of account growth potential, and brand recognition, but near-term see(s) a balance risk/reward.”

Navigating Through Chaotic Market

Earlier this year, Bankman-Fried extracted a 7.6% stake in the trading app worth $648 million in the belief that the shares would “represent an attractive investment.”  As his crypto exchange slid into bankruptcy, the founder’s Robinhood stake became the biggest liquid line item on his balance sheet that he could potentially sell.

In a bid to navigate through the turbulent year, Robinhood announced plans to lay off 23% of its staff last month amid shrinking revenue and declining user numbers. Despite crypto going downhill, the company’s CEO Vlad Tenev was bullish on the asset class. While speaking at CNBC’s Squawk Box, the exec stated,

“We still see opportunities with crypto. I think in particular customers have been looking for regulated safer options, particularly customers in the US.”