A company that has successfully unlocked the micro-investor market, Robinhood (NASDAQ: HOOD) is valued at a market cap of $29.22 billion. The advent of valuation tools over the years and the bear market witnessed in early 2020 acted as catalysts for Robinhood that has seen the number of users on its platform rise from six million at the end of 2019 to 22.4 million at the end of Q3. But is Robinhood a good investment at its current price?
The bull case for Robinhood
Robinhood has gained significant traction among the millennial investors in the U.S. As a discount broker, its accelerated growth in monthly active users allowed the company to increase sales $958.8 million in 2020, compared to just $277.5 million in 2019.
In the first nine months of 2021, Robinhood sales have risen by 126% year-over-year to $1.45 billion compared to $641.29 million in the year-ago quarter. Comparatively, in the third quarter of 2021, its net cumulative accounts almost doubled year-over-year while monthly active users rose by 76% to 18.9 million. These growth rates meant Robinhood’s assets under custody rose to $95 billion, compared with $44 billion in Q3 of 2020.
Robinhood confirmed it opened waitlists for its soon-to-be-launched crypto wallets, a product that garnered high demand from existing users. Over a million customers have already signed up for the waitlist, opening up another potential revenue stream for the company. Further, Robinhood introduced the option of deploying recurring investments in cryptocurrencies where users can build positions in several digital assets over time and benefit from dollar-cost averaging.
The bear case for Robinhood
Shares of Robinhood fell over 8% in after-hours trading last week after it disappointed Wall Street with its Q3 results and tepid guidance. Currently, HOOD stock is down 50% from all-time highs and is trading below its IPO price.
In Q3, Robinhood reported sales of $365 million, well below consensus revenue estimates of $431.5 million. Its adjusted loss per share of $2.06 was well below expectations of a loss of $1.37 per share in Q3.
The company derived just $51 million from crypto sales compared to $233 million in Q2 of 2021. While sales rose close to 200% in the first six months of 2021, it increased by “just” 35% year over year in Q3. The massive deceleration in revenue growth and volatility associated with the cryptocurrency business seems to have spooked investors.
Robinhood also expects revenue to range around $325 million in Q4, significantly lower than Wall Street estimates of $422 million.
So, should I buy Robinhood stock?
Robinhood is a company that has managed to disrupt the trading and investment space in the U.S., but its Q3 earnings have showcased the risks related to cryptocurrencies, and these can be exacerbated in a bear market.
However, the pullback provides you an opportunity to buy a quality growth stock at a lower multiple, especially for long-term investors.
How much did Robinhood IPO cost?
Robinhood priced its IPO at $38 per share
Does Robinhood insure your investments?
Your funds on Robinhood are protected up to $500,000 for securities and $250,000 for cash claims
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Contributing Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.