Robinhood Traders Beat The S&P 500: Is The Retail Investor Back?

Robinhood Markets Inc HOOD stock traded lower Friday, giving up some of its post-earnings gains after the popular online trading platform reported better-than-expected third-quarter revenue and earnings numbers earlier this week.

Robinhood had a solid third quarter, and the company said on its earnings call that its customer base of retail traders also outperformed in the third quarter as well.

Robinhood investors are hoping the stock has finally stopped the bleeding after losing more than two-thirds of its value in the last 12 months. Robinhood's business boomed in 2021 during a period of market mania for meme stocks and cryptocurrencies.

Yet investors have dumped risk assets in 2022 as the Federal Reserve has aggressively raised interest rates.

As a result, Bitcoin BTC/USD and Ethereum ETH/USD prices are down 57.1% and 58.7% year-to-date, respectively. Popular meme stocks GameStop Corp. GME and AMC Entertainment Holdings Inc AMC are also down 31.3% and 79.9%, respectively.

Related Link: Analyst Says Robinhood Stock 'Not Worth $1,' Calls It A 'Bad Bet For Investors With Alarming Risk'

Robinhood Users Outperforming: Despite the underperformance of cryptos and meme stocks, Robinhood said on its third-quarter earnings call that its users are performing relatively well as of late.

"Amidst the challenging macro environment, customers continue to trust us with billions of dollars of net deposits each quarter as they invest through the cycle for the long term. Excluding those deposits, our customers' portfolios, on average, slightly outperformed the NASDAQ and S&P in Q3," Robinhood CEO Vlad Tenev said.

Related Link: Why Meme Stocks AMC Entertainment And GameStop Are Still 'In Danger Of Declining To $0'

Robinhood has reported its user base is relatively young and inexperienced as a whole, with an average age of around 32. In addition to meme stocks and cryptos, Robinhood users also hold several of the highest-rated stocks among Wall Street analysts as well. Ford Motor Company F, Apple, Inc. AAPL and Amazon.com, Inc. AMZN are among the five most common stock holdings for Robinhood users.

How To Play It: While Robinhood and its users had a relatively good third quarter, Bank of America analyst Craig Siegenthaler said Thursday that Robinhood's 1.8-million decline in monthly active users in the quarter remains a red flag for long-term investors.

"We believe the Covid-related tailwind reversal (bear market, back to work, stimulus reduction, etc) will continue to impact HOOD’s growth/retail engagement which is compounded by its high market share already achieved in the US market (23M accounts vs. 66M Americans aged 20-34 and SCHW at 38M)," Siegenthaler said.

Bank of America has an Underperform rating and $11 price target for Robinhood.

Robinhood's brokerage competitor Charles Schwab Corporation SCHW has gained 18% since posting a third-quarter earnings beat Oct. 17, and Interactive Brokers Group, Inc. IBKR has gained more than 13% since a third-quarter beat posted Oct. 18. 

Benzinga's Take: Outperforming the Nasdaq and the S&P 500 in the third quarter is a small victory for Robinhood users, but the bar for success was fairly low. The S&P 500 was down 5.2% in the third quarter, while the Nasdaq Composite was down 4.1%.

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