New research from analysts at JPMorgan Chase & Co. finds that shareholders of stocks such as Coinbase Global Inc COIN and Robinhood Markets Inc HOOD face a higher risk of dilution.
What Happened: In a note to clients seen by CoinDesk on Monday, JPMorgan equity research analyst Kenneth Worthington explained that the dilution risk came from restricted stock unit (RSU) offerings in employee compensation plans.
“Coinbase and Robinhood, like their tech-company peers, issue substantial equity to company employees allowing companies to both attract and incentivize employees while keeping cash compensation lower,” wrote the analyst.
See Also: HOW DOES COINBASE MAKE MONEY?
Year-to-date, Coinbase shares are down 73% and Robinhood shares are trading 52% lower. As such, Worthington expects both firms to lower employee grants via RSUs.
Still, he expects that the share creep from the RSU issuance will drive dilution at a 7% pace annually for the years to come.
If this rate of dilution were to continue for five years straight, JPMorgan estimates that it could reduce the value of HOOD and COIN to existing shareholders by 30%.
Both Coinbase and Robinhood offer retail investors access to trading cryptocurrencies like Bitcoin BTC/USD, Ethereum ETH/USD and Dogecoin DOGE/USD. As such, their stock prices often move in tandem with the wider cryptocurrency market.
Price Action: According to data from Benzinga Pro, COIN shares traded 1.89% lower after-market, while HOOD shares traded 0.22% lower over the same period.