Robinhood (HOOD) is flashing some impressive numbers from its third quarter, and the market's reacting accordingly. A 4.15% jump in the stock price, closing at $142.48, isn't something to sneeze at. But let's dig into those numbers, shall we? Because sometimes a surge is more about the sizzle than the steak.
The headline is record third-quarter revenue of $1.27 billion, a full 100% year-over-year increase. That's a doubling of revenue (or, to be precise, a 100% increase). Earnings per share (EPS) also beat expectations, coming in at 61 cents against an expected 48 cents. Transaction-based revenue exploded, up 129% to $730 million, fueled by crypto, options, and equities trading. Net deposits hit a record $20 billion, and funded customers rose 10% to 26.8 million. And the average revenue per user (ARPU) jumped 82% to $191.
All good news, right? Well, not so fast. The market often rewards growth, but it's crucial to understand where that growth is coming from and how sustainable it is. Robinhood's transaction-based revenue is heavily reliant on volatile assets like crypto and options. When the market's frothy, people trade more. When it's uncertain, they pull back. Is this quarter a sign of a fundamental shift, or just a reflection of a particularly active period?
Consider this: Robinhood's 52-week high is $153.86. Today's surge barely nudged it closer. It shows that even with these stellar results, the market isn't entirely convinced. It's like a mirage; the closer you get, the less real it seems.
Let's talk about insider activity. According to the reports, insider Steven M. Quirk sold 60,113 shares at an average price of $100.91, netting over $6 million. Daniel Martin Gallagher, Jr. also sold 25,000 shares at $148.34. (That’s a tidy sum of $3.7 million.) Over the last quarter, insiders sold a staggering 3,312,392 shares worth $393,476,209.
I've looked at hundreds of these filings, and while insider selling isn't always a red flag, this level of selling is… noticeable. Are they cashing out while the price is high? Do they see something the rest of us don't? It's certainly a question worth asking.
Analyst sentiment is a mixed bag. The consensus rating is "Moderate Buy," with an average price target of $125.10. But some analysts have upped their price objectives significantly. Citizens Jmp, for example, raised their target to $170.00. Piper Sandler restated an "overweight" rating and issued a $140.00 price objective. Bank of America upped their price objective to $157.00. What's fueling this optimism? Is it genuinely based on a belief in Robinhood's long-term prospects, or are they simply chasing the recent momentum?
The upgrades are interesting (and convenient for Robinhood), but I find myself more interested in the analysts maintaining a "Hold" rating. What are they seeing that the bulls are missing?
It's also worth noting that Benzinga’s Edge Stock Rankings place Robinhood's "Value" in the 4th percentile. This means that according to their metrics, Robinhood is significantly overvalued compared to its peers. (See: HOOD, DUOL, QCOM, APP, SNAP: 5 Trending Stocks Today - Robinhood Markets (NASDAQ:HOOD))
The question, as always, is sustainability. Can Robinhood maintain this level of growth? The company is clearly benefiting from increased retail participation in the market, but that participation is fickle. A major market correction could send those transaction volumes plummeting.
Robinhood's business model depends on keeping users engaged and trading. This often involves gamification and aggressive marketing tactics, which have drawn criticism in the past. (Remember the GameStop saga?) Is this a responsible way to build a long-term business? Or is it a recipe for another boom-and-bust cycle?
The increase in funded customers is encouraging (a 10% jump to 26.8 million). But what's the quality of those customers? Are they active traders, or are they simply holding small positions? The ARPU of $191 is impressive, but it masks the distribution of revenue. Are a small number of high-volume traders driving the bulk of the revenue, or is it spread more evenly across the user base?
These are the questions that need answering before we can truly assess Robinhood's long-term potential.
Robinhood's Q3 results are undoubtedly impressive. But before jumping on the bandwagon, it's crucial to look beyond the headline numbers. The reliance on volatile assets, the high level of insider selling, and the questions about the sustainability of user engagement all raise red flags. The market is giving Robinhood a cautious nod, but it's not a full-throated endorsement. And, frankly, I'm not sure it should be.
