Robinhood Markets: A Fresh Look at Its Business and Future Prospects
From IPO to Turbulence
Robinhood Markets, the pioneer of commission-free trading, went public in July 2021 at $38 a share. The stock soared to an all-time high of $70.29 just a week later, only to plummet below $7 by the following June. Rising interest rates led to a decline in demand for higher-risk stocks, options, and cryptocurrencies, which had driven most of Robinhood’s growth during the pandemic.
Recovery and Stabilization
However, as interest rates peaked and investors poured more cash back into its platform, Robinhood’s stock recovered over the next two years. Today, it trades at around $36, marking a five-bagger gain from its all-time low, although still shy of its IPO price.
Growth During the Pandemic
Robinhood’s growth accelerated during the pandemic, driven by social media buzz, stimulus checks, and a fear of missing out (FOMO). This buying frenzy, which lasted throughout most of 2020 and 2021, drove many meme stocks to their all-time highs. Robinhood went public near the peak of this frenzy.
Challenges and Stabilization
In 2022, Robinhood’s growth in funded customers nearly stalled, its number of monthly active users (MAUs) plummeted, and its assets under custody (AUC) shriveled as it attracted fewer net deposits during the market downturn. However, in 2023 and 2024, its business stabilized with the broader market as investors focused on future interest rate cuts.
Key Metrics
| Metric | 2020 | 2021 | 2022 | 2023 | 9 months of 2024 |
| — | — | — | — | — | — |
| Funded customers (in millions) | 12.5 | 22.7 | 23 | 23.4 | 24.3 |
| MAUs (in millions) | 11.7 | 17.3 | 11.4 | 10.9 | 11 |
| AUC (in billions) | $63 | $98 | $62 | $103 | $152 |
Growth and Profitability
Robinhood’s annualized average revenue per user (ARPU) rose 31% year over year to $105 in the third quarter of 2024, driven by the market’s recovery and the expansion of its subscription-based Gold plan. Its number of Gold subscribers jumped 65% year over year to 2.2 million in the third quarter of 2024. Robinhood also turned profitable on a GAAP basis in the first nine months of 2024 as it cut costs and reined in its stock-based compensation.
Competition and Challenges
Robinhood still faces stiff competition from traditional brokerages like Charles Schwab and Morgan Stanley’s E*Trade. It also generates 80% of its transaction revenue from riskier options and crypto trades instead of equities, which could exacerbate its volatility during a market downturn.
Future Prospects
If the Fed continues to cut rates, investors will likely pour more cash into Robinhood and place more trades. However, the Federal Reserve recently projected it would make fewer rate cuts in 2025 unless inflation finally cooled off, which could chill the market again and throttle Robinhood’s growth over the next three years. Analysts expect Robinhood’s revenue to grow at a CAGR of 22% from 2023 to 2026, and its net income to grow at a CAGR of 8% over the following two years.
Valuation and Outlook
Assuming Robinhood matches Wall Street’s estimates, continues to grow its earnings per share at a CAGR of 8% from 2026 to 2028, and still trades at 40 times forward earnings, its stock could potentially rise nearly 20% over the next three years. However, this growth might not be worth the near-term risk, and investors can likely net similar gains with more conservative stocks.
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