Robinhood Stock Looks Cheap At $16

Robinhood Markets stock (NASDAQ: HOOD) has declined by almost 31% over the last month, considerably underperforming the S&P 500 which remains up by about 2.4% over the same period. There are a lot of factors weighing Robinhood stock down. Firstly, it’s looking increasingly obvious that the boom in so-called “meme” stocks and speculative cryptocurrencies such as Dogecoin is cooling off. This was visible in Robinhood’s Q3 earnings as it actually lost customers after posting record growth in the first half of the year. Moreover, 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 the stock markets and trading activity. Separately, the SEC has also been investigating Robinhood’s payment for order flow revenue model, which entails selling the order flow of its customers to market makers, and this has created a big overhang over the stock as transaction revenues accounted for about 78% of Robinhood’s revenue in Q3.

So is Robinhood stock a buy following the recent sell-off? We think it is. While the concerns regarding the company’s near-term outlook are legitimate, we think this is more than priced into the stock, considering that it has corrected by over 75% from its all-time highs seen in August 2021. Robinhood has proven to be agile and innovative and has a good understanding of young retail investors and this should help it adapt even as the market cycle eventually turns, or if it faces setbacks to its revenue model. The company has also built a sizable customer base with more than 22 million funded accounts and this could allow it to cross-sell other financial products and services. Robinhood’s cryptocurrency push is also likely to be a meaningful driver of growth going forward, as cryptocurrency brokering is typically very lucrative (rival Coinbase posted net margins of 33% last quarter). Robinhood had been 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 cryptos. Robinhood’s stock now trades at about $15.60 per share, trading at a little over 6x our projected 2022 revenues for the company, a cheap valuation, in our view. We value the stock at about $25 per share. See our analysis on Robinhood Markets Valuation: Is HOOD Stock Expensive Or Cheap? for more details on Robinhood Markets stock’s valuation and comparison with peers. For more information on Robinhood’s business model and revenue trends, check out our dash on Robinhood Markets Revenue: How HOOD Makes Money

Below you’ll find our previous coverage of Robinhood stock where you can track our view over time.

[10/12/2021] What’s Happening With Robinhood Stock?

Robinhood Markets is best known as a zero-commission brokerage app that Millennials turned to, to cash in on the soaring Covid-19 stock market and to ride the meme stock wave. However, Robinhood stock which was listed in late July hasn’t really delivered for investors since its listing this Summer. While Robinhood was listed at a price of about $38 per share, it currently trades just about $42 per share, after briefly rising to as much as $70 per share. So what’s holding Robinhood stock back? We think there are a couple of factors.

Retail traders, who powered Robinhood’s growth, are likely to be less interested in stock trading, as they headed back to the office and seek entertainment outdoors, following the Covid-19 lockdowns. For perspective, Robinhood’s app downloads, which can be viewed as a rough estimate of new account openings, declined 78% over Q3 2021, versus Q2, per data from Apptopia. Other brokerages and crypto trading platforms have seen much smaller declines, in comparison.

There also appears 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 the order flow of its customers to market makers. The company also recently warned that rising 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 has a relatively limited float currently and could be seeing some pressure in anticipation of lockup expiries and plans of large shareholders to liquidate their shares. For example, in early August the company said in an SEC filing that some existing investors who bought into the company via private placement plan to sell close to 97.9 million shares over time.

We value Robinhood stock at about $39 per share, slightly below the current market price. See our analysis on Robinhood Valuation: Is HOOD Stock Expensive Or Cheap? for more details on Robinhood Stock’s valuation and comparison with peers.

Think cryptocurrency could disrupt the banking industry? Looking for upside from Bitcoin adoption, without buying into the cryptocurrency itself? You can find more about our theme on Cryptocurrency Stocks

[9/21/2021] Robinhood Is Pushing Further Into Crypto Business. How Will This Impact Its Stock?

Robinhood Markets, best known as a zero-commission stock brokerage, has been increasingly focusing on improving its cryptocurrency offerings. Bloomberg 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 would enable users to store and manage all their virtual currencies in one place, and also use them without having to convert them to dollars. This has been a much sought-after feature and could enable the company to better compete with the big crypto platforms such as Coinbase. Separately, last week, the company said that it would allow users to set up recurring investments in crypto assets, essentially setting a specific amount to be invested on a periodic basis, automatically.

Robinhood’s interest in crypto is understandable. Over Q2 2021, cryptocurrency accounted for over 51% of the company’s total transaction revenues, eclipsing its core options and equity trading businesses. In fact, over Q2 customers appeared to be signing up on Robinhood primarily for its crypto offerings, with more new customers placing their first trade in cryptocurrencies rather than equities. The increasing crypto exposure should also help de-risk Robinhood’s revenue streams to an extent, as its core equity and options business faces mounting scrutiny from the SEC over its payment for order flow model. The SEC doesn’t really control the crypto market, on the other hand. That said, the crypto market is cyclical and Robinhood’s revenues could be even more vulnerable in a downturn, given its focus on retail traders unlike platforms such as Coinbase who derive an increasing portion of sales from institutions.

We value Robinhood stock at about $39 per share, roughly in line with the current market price. See our analysis on Robinhood Valuation: Is HOOD Stock Expensive Or Cheap? for more details on Robinhood Stock’s valuation and comparison with peers.

[9/7/2021] What’s Happening With Robinhood Stock?

Although Robinhood Markets is best known as a zero-commission stock brokerage that’s popular with millennials and first-time traders, the company actually has a very fast-growing cryptocurrency business. Over the most recent quarter, cryptocurrency accounted for over 51% of the company’s total transaction revenues, eclipsing its core options and equity trading…