Robinhood (NASDAQ: HOOD) inventory has been on fireplace, surging 87% greater over the previous twelve months. The corporate gained notoriety for its position within the meme-stock-fueled frenzy, which despatched its shares as much as $85 within the days following its 2021 IPO.
Regardless of the current rally, Robinhood inventory remains to be 80% beneath its all-time excessive. The corporate has made progress in bettering its backside line in current quarters. Nonetheless, it has some large questions it nonetheless wants to handle. Right here are some things you may need to think about earlier than shopping for Robinhood.
Robinhood has innovated finance in a number of methods
Based over a decade in the past, Robinhood got down to “democratize finance for all” and make investing extra accessible and reasonably priced for retail traders. The corporate ushered in zero-commission buying and selling, turning conventional brokerage revenue fashions on their head. It additionally popularized fractional shares, and its innovation has spurred brokerages to vary.
The corporate has additionally confronted its fair proportion of scrutiny. For instance, it is confronted criticism for its gamification of investing, which some say results in impulsive habits and overtrading and was a key a part of the meme stock frenzy a number of years again.
Robinhood has additionally obtained criticism for its enterprise mannequin, during which it sells prospects’ order flows to a market maker, incomes a small charge in return. Whereas this permits for commission-free buying and selling, some argue it creates a conflict of interest, and prospects do not get the very best costs doable.
Development lately has been lackluster
Final yr Robinhood introduced in $1.9 billion in income, which grew 37% from the prior yr, which was a difficult one for the corporate. Its income was round 3% above 2021, when it benefited from a flurry of inventory market exercise.
The corporate has struggled to show a revenue. Final yr it misplaced $541 million, which was really an enchancment from its $1 billion loss and $3.7 billion loss within the two years prior.
HOOD Revenue (TTM) knowledge by YCharts.
The corporate has additionally seen gradual development in its buyer base. Final yr, the variety of funded prospects was 23.4 million, up 1.7% from the earlier yr. Additionally, the variety of month-to-month lively customers was 10.9 million, down 4.4% from the earlier yr and 37% from 2021.
Here is how the dealer plans to win prospects
Robinhood is taking steps to draw extra prospects to its platform. For one, it permits its Robinhood Gold prospects to earn 5% curiosity on invested brokerage money. It additionally provides conventional particular person retirement accounts (IRAs) and Roth IRAs, and matches buyer funds to encourage them to be long-term account holders. It additionally provides 24-hour buying and selling throughout lots of of shares, 5 days per week.
The corporate has taken a number of steps to diversify its enterprise and appeal to extra buyer funds to its platform. It is seen good development in property below custody, which elevated 65% from final yr to $102.6 billion. Nonetheless, this represented development of simply 5% above its earlier high-water mark in 2021.
Picture supply: Getty Pictures.
Robinhood faces stiff competitors and hasn’t gained a foothold with key buyer teams. In response to a survey by The Motley Fool, Block‘s Money App is the preferred funding app amongst respondents at 38%. The following highest had been Constancy (11%), Coinbase (10%), Acorns (9%), JPMorgan (9%), and at last Robinhood (9%).
It is also the fifth-most-used app among the many key Gen Z and Millenials demographics, displaying its moat is not very sturdy, and that it has its work reduce out for it to realize market share.
Is it a purchase?
The corporate has turned a revenue in two of the previous three quarters, displaying that it is made progress in bettering its backside line. Nonetheless, there are two metrics the place I might prefer to see it present stronger development: the variety of funded prospects and property below custody. Its development has slowed down significantly in comparison with just some years in the past, and stiff competitors within the brokerage trade will make it tough to realize market share.
The corporate remains to be early on in its development story, which nonetheless has an unsure consequence, making it a really speculative funding proper now. Most traders are greatest off avoiding the inventory in the intervening time.
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JPMorgan Chase is an promoting accomplice of The Ascent, a Motley Idiot firm. Courtney Carlsen has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Block, Coinbase International, and JPMorgan Chase. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
