Piper Sandler analyst Patrick Moley said the volatile trading environment drives third-quarter outperformance for exchange and trading companies, leading to a strong backdrop for retail brokers.

Moley maintained Robinhood Markets Inc (NASDAQ:HOOD) with an Overweight rating and a $27 price target.

Despite Net Interest Income headwinds from the lower rate environment, Moley noted several distinctive near-term opportunities for Robinhood Markets that should help drive continued earnings growth.

On October 16, Robinhood Markets is hosting an active trader summit in Miami, Florida. The analyst expects the company to introduce its new web-based trading platform and reveal a launch date for the roll-out of index options and futures trading to its 24 million customers.

He expects these new products to increase trading velocity among Robinhood Markets' existing customer base and index options and futures trading to be priced lower than competitor platforms. Moley noted that this should drive market share gains for Robinhood Markets in the high Average Revenue Per User (ARPU), web-based active trader segment that accounts for nearly 50% of the retail market where Robinhood Markets has zero exposure today.

Moley expects the fiscal third quarter of 2024 to be the second strongest quarter in Robinhood Markets' history in terms of both revenues and adjusted EBITDA. The analyst expects total revenues to increase 43% year-on-year (<1% Q/Q), driven by Y/Y increases across all major revenue lines.

Within transaction-based revenues, he expects Robinhood Markets' crypto trading revenue to increase by 184% Y/Y (-19% Q/Q), driven by continued substantial trading volumes and net deposit growth.

Moley expects higher rates for most of the quarter and higher customer balances to push a 20% Y/Y (+6% Q/Q) increase in NII. The analyst's adjusted EPS estimate of $0.17 in the third quarter would represent the second-highest quarterly EPS for Robinhood Markets since the fiscal second quarter of 2020.

Moley reiterated a Neutral rating on Coinbase Global Inc (NASDAQ:COIN) with a price target of $245.

The analyst expects total revenues to increase by 88% Y/Y (-12% Q/Q) to $1.27 billion in the third quarter. The Y/Y increase is driven by a combination of higher volumes driving higher Transaction revenues, higher crypto prices driving higher blockchain reward revenues, and higher interest rates & higher USDC market cap driving higher NII.

Moley expects transaction revenues in the third quarter to increase 118% Y/Y (-19% Q/Q) as a ~158% Y/Y increase in trading volumes is only modestly offset by an estimated ~2.5bp decrease in the blended fee capture.

The analyst forecasted an adjusted EBITDA of $782 million in the third quarter, up from $596 million in the second quarter.

Price Actions: HOOD stock is up 8.25% at $25.25 at last check Tuesday. COIN is down 1.72% at $166.02.

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