Can Cryptocurrency Be the Growth Catalyst Robinhood Needs?

Robinhood Markets (HOOD) was launched in 2013 as a financial services company but gained momentum after launching a commission-free stock trading app in 2015. On this app, investors can trade stocks, ETFs and cryptocurrencies, free of cost. 

It hasn’t been long since HOOD made its debut on Nasdaq Global Select Market on July 29 of this year. The stock opened at $38 on that day, fell 8% simultaneously, but rose to a 52-week high of $85 in the first five days of trading. Unfortunately, that was a one-time event for this stock, with HOOD stock trading below $30 for much of November.

However, there’s one catalyst some investors are looking at with Robinhood as a reason to buy. While I’m neutral on this stock right now, I think this catalyst is worth diving into.

Let’s take a look at what the bulls are considering as a key reason to buy Robinhood right now. (See Analysts’ Top Stocks on TipRanks)

A Cutting Edge Crypto Wallet Feature 

Most investors know just how impressive many cryptocurrencies have been this year. These digital assets have skyrocketed in value, in many cases making millionaires out of people who invested small sums of money at the beginning of this year.

Accordingly, the average meme stock investor is likely to be exposed to the crypto movement in some way, shape, or form. As a medium for trading many of these more speculative assets, Robinhood has looked for a way to get in on the action.

One of Robinhood’s most recent features is its new crypto wallet. On Robinhood, investors can buy and sell crypto for a trading fee of, you guessed it, 0%. This zero-fee status has put Robinhood in the running to capture more market share among crypto traders relative to other popular platforms such as Coinbase (COIN).

Indeed, Coinbase’s stock price has seen similar price action to that of Robinhood. However, many investors point to Robinhood’s zero-trading fee platform as one of the reasons for this. Margin compression in this segment is real, and Robinhood is looking to eat its competition’s lunch.

Now, how brokerages in the crypto space innovate to take on Robinhood’s zero-fee strategy remain to be seen. However, crypto bulls have noted Robinhood’s platform as one that could gain some serious market share in this high-growth space over time. Profitability may take time to materialize.

However, Robinhood appears to be in the business of grabbing as much market share as possible, as quickly as possible. For long-term investors, this strategy could indeed pay off well.

What’s interesting about Robinhood is that this company isn’t afraid to break the rules. Robinhood has gone against conventional wisdom for some time. Accordingly, a rather large group of investors think this can be a winning strategy long-term.

The Impact of This Crypto Feature on HOOD Stock

The crypto market has swelled to become a multi-trillion dollar behemoth. A tremendous amount of capital is tied up in the crypto markets. Accordingly, it’s unsurprising to see companies like Robinhood come along and attempt to ride this wave as high as it will go.

In essence, brokerages that make money (one way or another) from trading activity benefit from this surge in investor interest. For Robinhood, this interest has materialized into meaningful results of late.

The company’s recent earnings reports signal just how rapidly this Crypto segment is growing. In Q2, Cryptocurrency Trading made up $233 million in revenue, more than half the platform’s total. Additionally, this number translated to 4,560% growth year-over-year in the Crypto segment alone.

Now, Robinhood started at a relatively low base, so perhaps that comparison is meaningless. However, the fact is that this is a hyper-growth space with a tremendous amount of potential. For Robinhood investors, there’s certainly an enticing argument to be made that this strategic shift toward crypto was well-timed.

Others are more skeptical about these numbers. The idea that this highly-volatile market will continue to go up forever is not one that’s shared by conventional investors. There are some indications that the mania of 2021 may be slowing of late. Accordingly, investors have taken caution concerning forecasting Robinhood’s growth. Fair enough.

That said, on balance, Robinhood appears to continue to ramp up its efforts to become the most-utilized exchange out there. Those who think crypto is real and here for the long haul may want to take a close look at this company right now.

Wall Street’s Take

Turning to Wall Street, Robinhood has a Moderate Buy consensus rating, based on six Buys, six Holds, and one Sell assigned in the past three months. The average Robinhood Markets price target of $45 implies 73.3% upside potential.

Analyst price targets range from a high of $62 per share to a low of $26 per share. 

The Bottom Line

Robinhood’s goal has been to democratize finance for all, and this feature takes its goal further. The company’s robust team has worked very hard to make crypto transfers secure and fast. The safety features in the wallet are mind-blowing, including identity verification, email, and phone verification.

There’s certainly reason to have tempered optimism around HOOD stock. This is a company with a valuation that’s hard to pin down. That’s not likely to change anytime soon.

However, should Robinhood continue to pump out strong results, anything’s possible. This market has been an interesting one to follow, and Robinhood remains one of the most interesting stocks of the bunch right now.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.