In a note to clients Monday, JPMorgan (JPM) said: cryptocurrency Shareholders of exchange Coinbase and brokerage platform Robinhood Markets are at risk of higher stock dilution from the restricted share premium included in employee compensation plans.
Coinbase and Robinhood at Risk of High Share Dilution
The dilution could come at a negative time for shareholders, given that both stocks suffered during the global crypto and equity market downturns, according to the bank. Shares of Coinbase and Robinhood have lost approximately 73% and 51% respectively to date.
“Coinbase and Robinhood, like their tech company counterparts, issue substantial equity to company employees, allowing companies to both attract and encourage employees while keeping cash compensation lower,” Kenneth Worthington, a JPMorgan equity research analyst, said in a note to clients.
Given the sharp decline in share prices, JPMorgan expects Coinbase and Robinhood to reduce employee equity through restricted share premiums, but still expects “share depreciation from the issuance of the restricted share premium to accelerate to a substantial 7% annualized rate in the coming years.”
The bank estimates that if this 7% pace continues for five years, each of the companies could reduce their value to existing shareholders by 30%.
As the crypto and equity markets remain under pressure, many public and private companies continue their cost control efforts. In June, Coinbase announced it was laying off about 1,100 employees, while Robinhood said in April it laid off about 9% of its full-time workforce.
*Not investment advice.