Robinhood makes out like a bandit on crypto surge

Key Points

• Robinhood is an online and mobile brokerage offering financial services like zero commission stock and options trading, as well as access to cryptocurrency, to 10.9 million monthly active users (MAUs).
• Robinhood posted record full-year 2023 revenues and positive GAAP net income in Q4 2023.
• The trading volume of cryptocurrency nearly doubled YoY, helping drive transaction revenues higher by 8% YoY to $200 million in Q4 2023.

Robinhood Markets Inc. NASDAQ: HOOD is an online brokerage and financial services company that offers commission-free stock, exchange-traded funds (ETFs), and options trades with access to cryptocurrencies through its mobile app platform. The simplified interface caters to new and small investors. The company spearheaded the era of zero-commission trades as it sought to democratize the markets. It also helped fuel the meme stock craze of 2021. Robinhood shares surged as high as $85 in August 2021 and plummeted to a low of $6.81 in June 2022.

Leading the zero-commission trading revolution

Robinhood is credited for forcing the major online retail brokers like Charles Schwab Inc. NYSE: SCHW, TD Ameritrade, Morgan Stanley NYSE: MS owned E-trade, and Interactive Brokers Group Inc. NASDAQ: IBKR to adopt zero-commission trades. The brokers had no choice but to change to a commission-free trading fee schedule or risk losing market share to Robinhood and brokers that did. Fintech platforms like SoFi Technologies Inc. NASDAQ: SOFI also adopted zero-commission trades.

Controversies

Robinhood faced scrutiny over how it generated revenues by selling order flow rather than charging commissions. Additionally, it faced scrutiny for its lack of phone support and e-mail-only customer service, which it has added since then. The company received a public lashing during the GameStop Co. NYSE: GME led meme short squeeze mania in 2021 when they imposed trading restrictions. The company was sued but won the dismissals of GameStop lawsuits in 2023. The company has come full circle and is starting to grow again with the stock market and cryptocurrency market rallies.

A strong closing to 2023

Robinhood reported Q4 2023 EPS of three cents per share, beating consensus estimates by four cents. GAAP net income was $30 million, and adjusted EBITA was $133 million. Robinhood received net positive transfers from every major brokerage competitor, which helped fuel strong net deposits of $4.6 billion in the quarter. Revenues rose 224% YoY to $471 million, beating consensus analyst estimates of $454.73 million. Full-year 2023 revenues reached a record $1.9 billion, up 37% YoY.

Q4 2023 Metrics

Net interest revenues grew 41% YoY to $236 million, driven by growth in interest earnings assets and higher short-term interest rates. Transaction-based revenues rose 8% YoY to $200 million, driven by cryptocurrency revenues of $43 million. Equities transaction revenues jumped 10% YoY to $25 million, offset by a 2% drop in options revenue of $121 million. Total operating expenses fell 17% YoY to $445 million. Assets under custody (AUC) jumped 65% YoY to $102.6 billion. Average revenue per user (APRU) grew 23% YoY to $81.

Dropping Metrics

The company ended 2023 with $4.8 billion, down from $6.3 billion in 2022. The decrease was primarily due to the company buyback of 55 million shares, the acquisition of X1 becoming Robinhood Credit, and the movement of some corporate cash into investments. Monthly active users (MAUs) fell 4% YoY to 10.9 million. Its Robinhood Gold premium membership subscriptions rose 25% YoY to 1.42 million. The company added 11 spot bitcoin ETFs after they were approved by the United States Security and Exchange Commission (SEC).

Outlook for 2024

Robinhood plans to keep investing in growth investments in 2024 while driving international expansion. Total GAAP operating expenses and non-GAAP combined adjusted operating expenses and SBC for the full year 2024 to be $1.85 billion to $1.91 billion. The company has kicked off its UK and EU global expansion.

Robinhood CEO and Co-Founder Vlad Tenev commented, "2023 was a strong year as our product velocity continued to accelerate, our trading market share increased, and we started to expand globally. And we're off to an even better start in 2024, as we've already brought in more Funded Customers and Net Deposits through the first half of Q1 than we did in all of Q4 2023."

Robinhood analyst ratings and price targets are at MarketBeat. Robinhood peers and competitor stocks can be found with the MarketBeat stock screener.

Daily cup pattern

The daily candlestick chart on HOOD shows a cup pattern, which is completed after forming a rounding bottom. The cup lip line commenced at a swing high of $13.51 on December 27, 2023. HOOD fell to a low of $10.38 on January 19, 2024, before triggering a market structure low (MSL) breakout through the $11.17 trigger. HOOD formed a rounding bottom heading into its Q4 2023 earnings release. The strong report caused shares to form a price gap to $12.77 from $11.94 and completed the cup pattern as HOOD rallied through the $13.51 lip line. The daily relative strength index (RSI) has surged up through the 70-band. Pullback support levels are at $12.77, $11.94, $11.17 and $10.64.