Barclays Research has upgraded its outlook on Coinbase (COIN) and Robinhood (HOOD), citing improvements in their business models and financial standing. In a report released overnight, the British research group raised both companies from "underweight" to "equal weight," underscoring their growth, diversification, and resilience in the face of industry challenges. Although both companies' stocks saw gains initially, they later retreated following declines in bitcoin and the broader crypto market. The upgrade signals growing confidence in these platforms, especially as regulatory environments improve and new opportunities in the digital asset space emerge.

Barclays Upgrades Coinbase and Robinhood: Better Business Models

Barclays has upgraded Coinbase and Robinhood to equal weight from underweight, based on their increasingly robust business models. According to Barclays analyst Benjamin Budish, both companies have "matured meaningfully," especially in terms of product expansion and a more optimistic financial outlook. Despite a volatile trading session, which saw both stocks dip following a drop in bitcoin and the CoinDesk 20 Index, the bank remains positive about their long-term prospects.

Coinbase's Potential Amid a Friendlier Regulatory Environment

The report emphasized Coinbase’s potential to benefit from a more favorable regulatory landscape. Both U.S. presidential candidates have signaled increasingly supportive stances on digital assets, which could bolster Coinbase’s outlook. In particular, the approval of spot crypto exchange-traded funds (ETFs) could provide a significant tailwind for the platform. Barclays believes that, despite ongoing risks, Coinbase’s leadership in the U.S. crypto market, product diversification, and strong performance warrant a more balanced risk/reward assessment.

Resilience Post-FTX Collapse: Coinbase’s Focus on Cost Discipline

Since the collapse of FTX and other major crypto firms in 2022 and 2023, Coinbase has shown remarkable resilience. The report praises Coinbase’s management for maintaining cost discipline, particularly in its workforce management. Budish noted that while the company’s activity has increased in 2024, its operating costs have grown modestly, allowing the firm to achieve higher margins. This cost discipline has helped position Coinbase to leverage the ongoing recovery in the crypto market.

Diversified Revenue Streams Beyond Trading Fees

While Coinbase still derives the majority of its revenue from trading fees and interest income, it has significantly diversified its revenue streams. Barclays highlighted emerging revenue sources such as blockchain rewards, custody revenues, and other transaction fees as meaningful contributors to the company's growth. This diversification reduces the firm's reliance on volatile trading activity, giving it more stability in the face of market fluctuations.

Remaining Risks: Macroeconomic and Regulatory Challenges

Despite the positive outlook, the analysts caution that uncertainty remains, particularly regarding the broader macroeconomic environment and regulatory clarity. The ongoing Securities and Exchange Commission (SEC) lawsuit against Coinbase—which involves allegations related to the classification of certain assets as securities—continues to cast a shadow over the company’s prospects. A resolution to this case is seen as crucial for Coinbase to navigate the regulatory minefield successfully.

Robinhood's Turning Point: Growth in New Markets

Similar positive developments were observed in Robinhood’s business model. Barclays highlighted Robinhood’s expansion into the UK and Europe, along with the introduction of new products, as key growth drivers. In addition, the pending acquisition of Bitstamp could bring new customers to the platform, further enhancing its appeal. The report stated that the factors which previously led Barclays to rate Robinhood as underweight are now "increasingly turning around," providing a more balanced outlook for the stock.

Risk/Reward Balance Improving for Both Firms

Barclays concludes that the risk/reward profiles for both Coinbase and Robinhood have improved. With a combination of diversified revenue sources, product expansion, and more favorable market conditions, both firms are positioned for potential upside. While challenges remain, particularly around regulation, the foundation laid by these companies points toward a more balanced and optimistic future.