Robinhood (NASDAQ:HOOD) stock has made a nice come back this year, as investors bet on the company’s business model. Robinhood simplifies investing in stocks and cryptocurrencies online. In March, it had 23.6 million funded customers and $80.9 billion in trading volume, a 41% increase from last year.
The platform’s cryptocurrency trading increased by 86% to reach $6.5 billion. If these numbers can continue, there’s certainly a lot to like about this stock’s potential. Of course, this is among the most closely-watched growth stocks that also carries significant risk. Let’s try to square these two ideas and dive into whether this stock is a buy, sell or hold.
Interest Income and HOOD Stock
In February, Robinhood surprised investors with a profitable fourth quarter. Strong results were driven by increased interest income and trading activity. Shares surged 10% after the announcement, benefiting from higher interest rates.
The company reported robust revenue growth in 2024, driven by increased net deposits, rising gold adoption, and market share gains. Robinhood now aims for margin expansion, expecting a stable to slightly increased head count this year.
Analysts also expect a 1 cent net loss, despite the company recently posting a 3 cent per share profit.
Interestingly, Robinhood’s recent growth has been driven by increased margin investing. This has allowed the company to lend eligible customers money for securities, but is a strategy that also carries risk.
Net revenue increased from $167 million to $236 million in the past year. Transaction-based revenues, driven by crypto trends, saw impressive growth. But as mentioned, these catalysts are certainly ones to put in the higher risk bucket.
Despite seeing a 4% decline in monthly active users, the company also saw over 23% increase in average revenue per user. Overall, the numbers are pointing in the right direction, and that’s why HOOD stock is up significantly this year.
Fintech Innovation at Its Finest
After being in the market for over 10 years, Robinhood aims to democratize the finance sector with more accessible and affordable investing options. The company introduced zero-commission trading and popularized fractional shares, prompting changes in brokerage models.
However, Robinhood has seen some slow engagement in investing and received backlash for promoting impulsive investing moves.
Last year, Robinhood generated $1.9 billion in revenue despite facing hurdles. That said, the company did struggle with profits, reporting over $500 million loss for the year. Although customer growth was crawling, funded customers saw a 1.7% increase from the previous year.
HOOD Stock is Not for the Faint Heart
For investors who want low risk investments in finance, HOOD stock could be a bet that’s not worth making.
This company is expected to have significant volatility, which may deter some investors. That’s understandable, and a reality that isn’t likely to change moving forward.
That said, there is something to Robinhood’s core business model that remains attractive to many long-term investors. Unlike traditional brokers, Robinhood attracts younger investors, positioning it for future growth as these investors accumulate wealth.
Analysts have pointed out Robinhood’s relatively tiny share of U.S. self-directed assets, but significant share of self-directed brokerage accounts.
Investing in Robinhood might be challenging, especially for risk-averse investors or Bitcoin (BTC-USD) critics. However, those willing to tolerate volatility may see growth, given Robinhood’s appeal to younger clients with growing wealth.
I’m going to put Robinhood in the cautious buy category for now, but only for investors who have the risk tolerance to ride out the volatility with this stock moving forward.
On the date of publication, Chris MacDonald did not have (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.
