Robinhood Markets Stock (NASDAQ:HOOD) is down nearly 31% over the past month, significantly underperforming the S&P 500, which has gained about 2.4% over the same period. There are several factors driving Robinhood stock short. First, it is becoming increasingly clear that the boom in so-called “meme” stocks and speculative cryptocurrencies like Dogecoin is cooling off. This was visible in Robinhood’s third-quarter earnings as it actually lost customers after posting record growth in the first half of the year. In addition, the Federal Reserve is likely to raise interest rates sooner than expected to fight inflation, and this could prove to be a net negative for stock markets and trading activity. Separately, the SEC is also examining Robinhood’s pay to order flow revenue model, which emphasizes selling its clients’ order flows to market makers, and that has created a major overhang on the stock as transaction revenues increase by Robinhood. accounts for about 78% of its revenue. In Q3.
So is Robinhood stock a buy after its recent sell-off? We think it is. While concerns about the company’s near-term outlook are valid, we think it is overpriced by the stock price, given that it has corrected more than 75% from its all-time high seen in August 2021. Robinhood has proven to be agile and has a good understanding of innovative and young retail investors and this should help it adapt to changes at the end of a market cycle or even when it faces setbacks in its revenue model. The company has also built up a large customer base with over 22 million funded accounts and this could allow other financial products and services to be cross-selled. Robinhood’s cryptocurrency push is also likely to be a worthwhile driver going forward, as cryptocurrency broking is generally very lucrative (rival Coinbase posted a net margin of 33% last quarter). Robinhood was adding new features to its crypto service and is likely to launch a crypto wallet feature this month that will enable users to send and receive crypto. Robinhood’s stock now trades at about $15.60 per share, trading at a little over 6x our projected 2022 revenue for the company, a cheap valuation in our view. We value the stock at approximately $25 per share. View our analysis Robinhood Market Valuationhood stock is expensive or cheap? for more information Robinhood Markets Stocks Evaluation and comparison with peers. For more information on Robinhood’s business model and revenue trends, check out our Dash Robinhood Markets RevenueHow Hood Makes Money
Below you’ll find our previous coverage of Robinhood stock where you can track our outlook over time.
[10/12/2021] What’s up with Robinhood stock?
Robinhood Markets Known as a zero-commission brokerage app, Millennials turned to the rising Covid-19 stock market to capitalize on the stock market and ride the meme stock wave. However, Robinhood stock that was listed in late July hasn’t actually been distributed to investors since listing this summer. While Robinhood was listed at a price of about $38 per share, it currently trades at about $42 per share, after briefly rising to $70 per share. So is Robinhood stock holding back? We think there are a few factors.
Retail traders driving Robinhood’s growth are likely to be less interested in stock trading as they go back to the office and seek entertainment after the COVID-19 lockdown. For perspective, Robinhood’s app downloads, which can be seen as a rough estimate of new account openings, declined 78% in Q2 compared to Q3 2021, according to data from Apptopia. Very little drop has been observed as compared to other brokerages and crypto trading platforms.
There also appear to be some regulatory concerns for Robinhood. The company’s core equity and options business is facing some scrutiny from the SEC over its revenue model, which entails selling its clients’ order flows to market makers. The company also recently warned that the increasing regulatory scrutiny of cryptocurrencies could pose a risk to its business. For perspective, payment for order flow accounted for about 38% of revenue in Q2 2021, while cryptocurrencies accounted for 41% of total revenue.
Robinhood stock currently has a relatively limited float and may see some pressure in anticipation of the end of the lockup and large shareholders’ plans to liquidate their shares. For example, in early August the company said in an SEC filing that some existing investors who had bought into the company through a private placement plan plan to sell about 97.9 million shares over time.
We value Robinhood stock at approximately $39 per share, which is slightly less than the current market price. View our analysis Robinhood Valuationhood stock is expensive or cheap? for more information Robinhood Stock Evaluation and comparison with peers.
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[9/21/2021] Robinhood is moving forward in the crypto business. How will this affect its stock?
Robinhood Markets, formerly known as a zero-commission stock brokerage, is focusing on improving its cryptocurrency offerings. Businesshala reports that Robinhood is testing new cryptocurrency wallet and transfer features for its app. While customers can already buy and sell crypto assets such as Ethereum and Bitcoin on the Robinhood platform, the Wallet feature enables users to store and manage all of their virtual currencies in one place, and without having to convert them into dollars. also uses. This has been a much sought-after feature and could enable the company to better compete with larger crypto platforms such as Coinbase. Separately, last week, the company said it would allow users to set up recurring investments in crypto assets, essentially setting a specific amount to be invested automatically on a periodic basis.
Robinhood’s interest in crypto is understandable. In Q2 2021, cryptocurrencies accounted for more than 51% of the company’s total trading revenue, eclipsing its core options and equity trading businesses. In fact, over Q2 more customers appeared on Robinhood signing up primarily for its crypto offerings, with more new customers making their first trades in cryptocurrencies rather than equities. Growing crypto exposure should help de-risk Robinhood’s revenue streams to an extent, as its core equity and options business faces increasing scrutiny from the SEC over its payout order flow model. On the other hand, the SEC does not actually control the crypto market. That said, the crypto market is cyclical and Robinhood’s revenue could weaken even further in a recession, as opposed to platforms such as Coinbase which tend to focus on retail traders, which derive a substantial portion of sales from institutions.
We value Robinhood stock at approximately $39 per share, which is roughly in line with current market prices. View our analysis Robinhood Valuationhood stock is expensive or cheap? for more information Robinhood Stock Evaluation and comparison with peers.
[9/7/2021] What’s up with Robinhood stock?
Although Robinhood Markets Known as a zero-commission stock brokerage that is popular with millennials and first time traders, the company actually has a very fast growing cryptocurrency business. In the most recent quarter, the cryptocurrency accounted for more than 51% of the company’s total transaction revenue, eclipsing its core options and equity trading businesses. In fact, the second quarter saw customers signing up primarily for its cryptocurrency products on Robinhood, with more new customers making their first trades in cryptocurrencies rather than equities. Over 60% of Robinhood’s cumulative funded accounts were traded in crypto during the second quarter of 2021. Crypto-related revenue streams grew from just $5 million in Q2 of 2020 to approximately $233 million in Q2 2021. Although it lags behind the likes of Coinbase, which posted around $2. Billions in Q2 Sales, Robinhood’s Crypto Growth Still Notable.
Robinhood offers free trades for cryptocurrency, making money by selling its clients’ order flows to market makers, just like it does for options and equities. However, unlike equity and option payments for order flow businesses that have come under scrutiny, regulatory risks for crypto business are probably low, as the SEC does not actually control the crypto market. That being said, we don’t think Robinhood can rely on its crypto business to drive continued growth. The cryptocurrency market is extremely volatile and is subject to multi-year cycles (typically two to four years) and engagement in a bear market can collapse quickly. While this is a risk that all crypto brokers face, the impact on Robinhood may be more pronounced as the company largely caters to first-time investors who may opt out as the market drops. In comparison, rival Coinbase received nearly two-thirds of its crypto trading volume in its most recent quarter from institutional clients, who are less likely to lose out.
We value Robinhood stock at approximately $39 per share, which indicates a decline of approximately 13% from current market price. View our analysis Robinhood Valuationhood stock is expensive or cheap? for more information Robinhood Stock Evaluation and comparison with peers.
[9/3/2021] What’s up with Robinhood stock?
Robinhood Stock (NASDAQ:HOOD) is down nearly 5% over the past week (five trading days) compared to the S&P 500, which…