Robinhood Markets (NYSE:HOOD) has been in the doldrums for the last two years, but it looks like a turnaround is underway, and progress is steadily taking hold based on its excellent Q4 earnings results. I am bullish on the stock over the long term based on its impressive revenue growth, turnaround in user growth, swing to profitability, and the new features it is adding to make its platform a more compelling offering for its customers.
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The company is well-positioned in the current environment where both popular growth stocks and cryptocurrencies are in a bull market, capturing the interest of retail investors and attracting new investors to the market. Furthermore, the company has a ton of cash on its balance sheet, giving it plenty of optionality and giving investors a considerable margin of safety.
Robust Revenue Growth
Robinhood’s revenue growth was up markedly from a year ago. Robinhood reported revenue of $471 million, a 23.7% year-over-year increase from last year’s $380 million in revenue during the same quarter. Robinhood’s revenue also beat the $455 million that analysts expected the company to take in.
This revenue growth can be attributed to a variety of factors, including increased transaction-based revenue, net interest revenue, and average revenue per user (ARPU) growth (more on each of these later).
Swing to Profitability
Not only is Robinhood growing, but it is doing so profitably. Robinhood reported earnings after the bell Tuesday and surprised analysts by reporting a GAAP profit of $0.03 per share (versus analyst expectations that the company would lose $0.01 per share). This was only the second time the company posted a quarterly profit since going public in 2021 and the first since the second quarter of 2023.
This was a marked improvement from last year, when the company lost $0.19 per share during the same period. Some of this increase in profitability is thanks to higher interest rates, as Robinhood was able to charge higher interest rates to customers who want to borrow money for margin investing. Net interest revenue increased to $236 million from $167 million last year.
Reversing the Trend in User Growth
Perhaps most encouragingly, the company reversed the trend of slowing user growth by showing that it had 10.9 million monthly active users during the quarter, up from 10.3 million monthly active users the quarter before. This was a welcome reverse to the trend in which monthly active users fell for much of 2023.
Making matters more exciting, co-founder and CEO Vlad Tenev explained that this momentum in user growth is increasing in the new year, stating, “We’re off to an even better start in 2024, as we’ve already brought in more Funded Customers and Net Deposits through the first half of Q1 than we did in all of Q4 2023.”
Encouragingly, average revenue per user (ARPU) also ticked up to $81 (up from $80 in Q3). This ARPU was also 23% higher year-over-year.
The company has been offering users a 1% bonus on assets transferred from other brokerage accounts (you may have seen the commercials), and the strategy seems to be making an impact as Robinhood gained $1.3 billion in net positive brokerage account transfers during the quarter.
Note that these new customers aren’t just small fish either. Tenev noted that the company is averaging $100,000 per transfer on these accounts. Momentum in this area looks promising as well, as Tenev said, “In Q4, we finished with $1.3 billion of net positive brokerage account transfers into Robinhood, and we’ve already exceeded that total halfway through Q1.”
With the Nasdaq (NDX) and S&P 500 (SPX) firmly in bull-market territory, this is the type of environment where you’d expect retail investors and the general public to flock to the market, and Robinhood seems to be benefiting.
With popular technology and growth stocks like Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META) consistently posting new all-time highs and narratives like the rise of artificial intelligence capturing the public’s imagination, it seems likely that Robinhood should continue to benefit from this increased interest in the market and see further user growth from here.
Furthermore, after languishing for much of 2022, cryptocurrencies are in a bull market again. As one of just a handful of platforms where investors can buy stocks and cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH-USD) all in one place, Robinhood is well-positioned to attract new investors who want to dip their toes in the water with both types of assets.
The renewed interest in crypto also benefits Robinhood, as cryptocurrency transactions are generally more profitable than stock transactions, so this helped drive the company’s 8% year-over-year transaction-based revenue growth.
New Offerings
Robinhood continues to innovate, entering new markets and releasing new features. For example, it recently launched its brokerage services in the U.K. and crypto trading in the European Union. The company is also investing in improving its experience for active traders both on mobile and with “a more feature-rich professional offering on the web” for this cohort of investors. Robinhood will also be adding additional tradeable assets for these investors, such as index options and futures, this year.
Additionally, Robinhood is adding new offerings like credit cards and joint accounts as it expands the platform.
Gobs of Cash
Making the stock even more appealing, Robinhood has no debt and it has a mountain of cash on its balance sheet. In fact, the stock has $4.84 billion in cash and cash equivalents, meaning that its cash position makes up over 40% of its market cap. This large pile of cash gives the company plenty of optionality, and it gives investors a margin of safety when investing.
Is HOOD Stock a Buy, According to Analysts?
Turning to Wall Street, HOOD earns a Hold consensus rating based on three Buys, 6 Holds, and two Sell ratings assigned in the past three months. The average HOOD stock price target of $12.83 implies 1.2% downside potential.
The Turnaround is Underway
I am bullish on Robinhood based on its newfound profitability, its turnaround in user growth, and its impressive revenue growth. The stock is an appealing turnaround play, and amid a prolonged bull market for both stocks and cryptocurrencies, Robinhood is well-positioned to build on this momentum and add to this growth, meaning that there could be plenty more upside ahead.
