Robinhood (NASDAQ:HOOD) is falling today even after the company announced a positive catalyst. The digital trading platform began today with the news that it will be acquiring credit card startup X1 for $95 million. Despite all the volatility it has seen this year, HOOD stock has performed generally well, staying mostly in the green over the past two quarters.
This new acquisition has the potential to elevate shares as markets adjust to Robinhood expanding its holdings. However, the stock hasn’t reacted well to the news. Many prominent meme stocks are down today as market momentum continues working against them. However, this news raises the question of if Robinhood actually has some growth potential as it maneuvers to keep growing.
Does this mean that investors should be eyeing the company as a potential stock to buy before it rises again? Let’s take a closer look at Robinhood’s news and assess what investors should be expecting.
What’s Happening With HOOD Stock
As noted, HOOD stock began today by spending the morning on a downward trajectory. It has since attempted to rally but remains in the red. As of this writing, it is still down about 3% for the day though its current trading pattern suggests a rebound is possible. The stock certainly wants to end the day in the green, and it is making a valiant attempt, even if it doesn’t get there. Today’s performance might suggest that HOOD stock is still volatile, failing to rise despite the good news. This requires a deeper dive into the announcement.
You may not know the name X1, but that doesn’t mean that this deal doesn’t matter. Founded in 2020, the company offers consumers income-based credit cards. Its backers include venture capital firms such as Soma Capital, Craft Ventures and Spark Capital, and it has managed to raise $62 million since its founding. The startup’s total valuation hasn’t been released, but TechCrunch speculates that Robinhood seems to be getting a deal. Based on the recent history of credit card startups such as Petal and Yonder, it sees reason to believe that X1 can ultimately be worth well over $100 million.
The deal makes sense for Robinhood for other reasons. The company needs a positive catalyst after reporting declines across multiple operations. As Investopedia reports:
“The move could help diversify Robinhood’s income stream, after the company saw a decline in the number of subscribers and trading volume. Robinhood reported last week that in May, monthly active users (MAUs) dropped 28% from the year before, and trading revenue fell 9%, with equity trading volume sinking 15% and cryptocurrency volume plunging 68%.”
Why It Matters
With that in mind, it’s not hard to see why expanding its credit card offerings could help kickstart the growth that Robinhood needs. The launch of the new EDX Markets exchange could threaten its crypto trading numbers even more as investors take their chances with a platform backed by some of the financial sector’s biggest names. However, Robinhood’s remaining users could easily be drawn in by a new credit card option that doesn’t come with fees and offers a reward system.
HOOD stock still comes with plenty of risks. It is still a meme stock that has been highly volatile this year despite its slow growth. However, the acquisition of X1 could ultimately signal a turnaround for the troubled company.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
