Robinhood: The Future Still Looks Bright Despite +300% Rise

Key Points

• Robinhood Markets is up nearly 300% over the past year. 
• Crypto revenue headlined the company's large earnings beat. However, it's far from the only thing going well for this company. 
• Robinhood has exhibited strong performance in many underlying metrics. It also has future avenues it can pursue for growth.

Shares of the disruptive financial services company Robinhood Markets NASDAQ: HOOD continue to soar. As of the February 20 close, the stock price has risen nearly 300% over the past 52 weeks. Its earnings release on February 12 resulted in shares spiking massively. So, can this company continue rising in value, or are its fortunes set to turn? I’ll aim to answer this question by analyzing the company’s different business drivers.

Robinhood’s Crypto Boom Fuels Massive Earnings Beat

In Q4, Robinhood impressed versus Wall Street estimates both on the top and bottom lines. Its $1 billion in Q4 revenue was around $54 million higher than expected. It also posted earnings per share of $1.01, which was over double consensus estimates. One crucial metric in the company’s earnings release was its transaction-based revenues. Robinhood earns spreads on crypto, stock, and options trades as a trading platform. 

The firm saw a massive spike in its cryptocurrency transaction revenues of 733%, driven by a 393% spike in crypto notional trading volume from Q3 2024. Equity and options transaction revenues also saw impressive growth of 144% and 83% from a year ago.

Assessing Robinhood’s Crypto Exposure and Risks

Looking into the future, it is unreasonable to expect Robinhood's incredible performance in crypto trading to be consistent. In Q4 2024, crypto trading volume was abnormally high. According to data from Statista, crypto volumes hit their highest levels since 2021. This resulted in a massive benefit for Robinhood.

This was likely due in large part to Donald Trump's election. He notably has a pro-crypto mindset, going so far as to release his own crypto coins named after himself and his wife. Robinhood released monthly trading data on February 14, showing that crypto trading volume was down 32% from Jan. to Dec. Shares have sold off 14% since. 

Since the end of 2021, crypto volume growth has not been consistent, indicating this may not be a secular trend. Robinhood’s crypto revenue growth has also been very choppy. The figure dropped by 52% and 33% in 2022 and 2023, respectively. I am somewhat wary of showing strong support for companies with revenue highly tied to crypto interest.

As an example, Coinbase Global NASDAQ: COIN has provided a return of -22% since going public in 2021. However, it did go public at the height of the 2021 crypto frenzy. Luckily, Robinhood has other strengths it can rely on outside of crypto.

Robinhood’s Diversified Business Model Is A Recipe for Future Success

Robinhood’s ability to allow investors to trade options, stocks, and crypto is somewhat unique. Most investment platforms focus either on stocks and options or crypto. This means Robinhood isn’t totally dependent on crypto like Coinbase but can participate if crypto interest ends up being a secular trend.

An area where Robinhood has seen much more consistent growth is simply increasing its assets under custody. The firm has over tripled that figure since 2020. It took a hit in 2022, but that makes sense, considering the S&P 500 was down nearly 20% that year. This, along with higher interest rates, has contributed to its ability to grow its net interest revenue by 526% since 2020. Net interest revenue grew substantially each year over that time.

The company has also increased its retirement assets under custody by 7x in the past year. Robinhood's Gold Subscribers grew by 86% in a year, and its Gold Adoption rate increased by 4.4%. The company also has product areas like prediction markets and possibly even private market investments it can enter over time to drive growth. Also, the platform attracts younger investors. 

This gives it a chance to tap into the trillions in wealth expected to move from Baby Boomers to millennials and Gen Z over the next 20 years. Overall, these factors make me bullish on Robinhood in the long term, and I’m not scared away by its massive appreciation. However, volatility in crypto trading could also drive significant volatility in the stock price along the way.

MarketBeat tracked nine Wall Street analysts who updated their price targets after Robinhood’s earnings release. Taking the average of these new price targets provides a share price of just under $70. Based on the stock’s Feb. 20 closing price of just over $56, this target implies that shares could rise by 24%.