12/18/2022 0 Comments Robinhood app font![]() See our analysis on Robinhood Valuation: Is HOOD Stock Expensive Or Cheap? for more details on Robinhood Stock’s valuation and comparison with peers. We value Robinhood stock at about $39 per share, indicating a downside of about 13% from the current market price. In comparison, rival Coinbase derived roughly two-third of its crypto trading volumes over its most recent quarter from institutional customers, who are less likely to scale back. Although this is a risk that all crypto brokers face, the impact on Robinhood could be more pronounced as the company largely caters to first-time investors who could pull out as markets decline. The cryptocurrency market is extremely volatile and is also subject to multi-year cycles (usually two to four years) and engagement could quickly fall off in a bear market. That being said, we don’t think that Robinhood can count on its crypto business to drive consistent growth. However, unlike the equity and options payment for order flow businesses which has come under scrutiny, the regulatory risks are probably lower for the crypto business, as the SEC doesn’t really control the crypto market. Robinhood offers free trades for cryptocurrency, making money by selling the order flow of its customers to market makers, much like it does for options and equity. Although this is behind the likes of Coinbase, which posted about $2 billion in Q2 sales, Robinhood’s crypto growth is still noteworthy. Crypto-related revenue streams surged from a mere $5 million in Q2 2020 to almost $233 million in Q2 2021. Over 60% of Robinhood’s cumulative funded accounts traded in crypto during Q2 2021. In fact, in Q2 customers appear to be signing up on Robinhood primarily for its crypto offerings, with more new customers placing their first trade in cryptocurrencies rather than equities. Over the most recent quarter, cryptocurrency accounted for over 51% of the company’s total transaction revenues, eclipsing its core options and equity trading businesses. What’s Happening With Robinhood Stock?Īlthough Robinhood Markets is best known as a zero-commission stock brokerage that’s popular with millennials and first-time traders, the company actually has a very fast-growing cryptocurrency business. We value Robinhood stock at about $39 per share, roughly in line with the current market price. That said, the crypto market is cyclical and Robinhood’s revenues could be even more vulnerable in a downturn, given its focus on retail traders unlike platforms such as Coinbase who derive an increasing portion of sales from institutions. The SEC doesn’t really control the crypto market, on the other hand. The increasing crypto exposure should also help de-risk Robinhood’s revenue streams to an extent, as its core equity and options business faces mounting scrutiny from the SEC over its payment for order flow model. In fact, over Q2 customers appeared to be signing up on Robinhood primarily for its crypto offerings, with more new customers placing their first trade in cryptocurrencies rather than equities. Over Q2 2021, cryptocurrency accounted for over 51% of the company’s total transaction revenues, eclipsing its core options and equity trading businesses. Robinhood’s interest in crypto is understandable. Separately, last week, the company said that it would allow users to set up recurring investments in crypto assets, essentially setting a specific amount to be invested on a periodic basis, automatically. This has been a much sought-after feature and could enable the company to better compete with the big crypto platforms such as Coinbase. While customers can already buy and sell crypto assets such as Ethereum and Bitcoin on the Robinhood platform, the wallet feature would enable users to store and manage all their virtual currencies in one place, and also use them without having to convert them to dollars. Bloomberg reports that Robinhood is testing new cryptocurrency wallet and transfer features for its app. Robinhood Markets, best known as a zero-commission stock brokerage, has been increasingly focusing on improving its cryptocurrency offerings. Robinhood Is Pushing Further Into Crypto Business.
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