Robinhood Markets (HOOD 5.91%) and Coinbase Global (COIN 7.25%) have a lot in common. The two trading hubs both went public around the same time last year, benefiting from the boom in stock and crypto trading early in the pandemic. Both stocks did well initially in their debuts, but over the following months, they've fallen sharply by more than 80% from their peaks. The businesses have stalled as well, as both companies have announced layoffs in recent months as they bet too aggressively that the trading boom would last, and each one reported year-over-year revenue declines in the first quarter.
Still, that doesn't mean these stocks are finished. Each one is still the leading disruptor in its respective business. Let's take a closer look at what Robinhood and Coinbase have to offer today to determine which one is the better buy.
The choice of a new generation
Jeremy Bowman (Robinhood): Robinhood has suffered a barrage of attacks in recent years from both the general investing public and its own users. Some believe the brokerage has gamified stock trading and made it too easy for novices to lose money on options trading or other sophisticated strategies.
Meanwhile, it sparked the ire of its own users when it had to suspend trading temporarily during the meme-stock boom, which led to a crash in GameStop and other meme stocks.
In spite of the controversy around Robinhood, there's no doubt that it's disrupted the brokerage industry, making free trades the norm in the industry. The company now has nearly 23 million funded accounts and nearly 16 million monthly active users, significantly more than Coinbase. What also makes Robinhood appealing as an investment is that the average age of its users is just 31, making it the clear favorite of millennials and Gen Z. Robinhood is likely to maintain that brand loyalty as those generations get older and have more wealth, giving the company more opportunities for monetization, including services that more traditional brokerages offer.
Another advantage Robinhood has over Coinbase is that it gives investors exposure to both crypto and stock trading. If the crypto boom continues to fade, Coinbase will get crushed, but Robinhood doesn't need crypto to thrive.
Though the company has yet to demonstrate consistent profitability, its mobile-first technology, accessible brand, and growth potential with its young users should eventually lead to a stable and profitable business.
Why I like Coinbase more than Robinhood
Taylor Carmichael (Coinbase): Last year, when I first became interested in crypto, Coinbase was the obvious place to open my account. It's top dog and first mover among brokers in the crypto industry. If you want to learn about the crypto universe, you will naturally gravitate toward Coinbase. The company spends a lot of time, effort, and money introducing people to things like blockchain, decentralized finance, crypto wallets, non-fungible tokens, and so on through educational resource and blog posts on its website. You can buy over 100 coins at Coinbase.
Crypto is relatively new, and highly volatile, so it can be scary for people. Coinbase in synonymous with crypto -- it's 100% invested in that idea. It wants to grow with crypto and help introduce more and more people into that world.
Robinhood is more like a discount brokerage. Robinhood charges no fees, while Coinbase will charge a small commission on coin trades. And Robinhood is interesting because it is the first major broker to offer both crypto and stocks under the same roof.
One major difference between Robinhood and Coinbase is that the crypto offerings on Robinhood are extremely limited. You can buy 12 coins. This includes the two big names, Bitcoin and Ethereum; as well as two joke coins, Dogecoin and Shiba Inu. The discount brokerage has recently added Solana, Polygon, Chainlink, and a few others.
Of course the other notable difference between the two is that Coinbase is highly profitable, with 33% profit margins. Robinhood sports an ugly (negative 165%) non-profit margin. One of Robinhood's possible futures is that it goes belly up. Another discount crypto dealer, Voyager Digital, recently filed for Chapter 11 protection. That's terrifying as investors can lose everything in such a situation.
On the positive side, Robinhood has a strong brand, particularly among millennials. I see Robinhood as a place where young people unite to try to squeeze a hedge fund that is shorting a movie chain. It's a cheap place for meme investors to buy stocks and crypto. But if you're serious about crypto and want to learn about this new universe, Coinbase is the one for you.
Which stock is right for you?
Whether you choose between Robinhood and Coinbase is likely to come down to your own feelings about cryptocurrency. If you're a crypto bull, you'll probably favor Coinbase. If you're more hesitant to go all-in on crypto, then Robinhood is a better fit for you.
Both stocks are subject to broader market sentiment, so don't expect either to recover until investors turn bullish on stocks and crypto, but the market will eventually turn around. When it does, look for Robinhood and Coinbase to capitalize on that opportunity.