Robinhood Is Doing 'Everything Right': Analysts Focus On New Products, Traders Taking Market Share From Competitors

Robinhood Markets HOOD is enjoying strong deposit growth and new products, analysts noted after second-quarter results.

• Piper Sandler analyst Patrick Moley maintained a Neutral rating and $20 price target.
• Needham analyst John Todaro maintained a Hold rating and has no price target.
• JMP Securities analyst Devin Ryan reiterated a Market Outperform rating and $30 price target.

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Piper Sandler: Strong net deposit growth was a key factor in Robinhood's financial results, Moley said in a new investor note in which he raised earnings per share estimates for fiscal 2024 and fiscal 2025.

"Stronger than expected Transaction revenues drove the majority of an 8% ($50M) beat to our total revenue estimate," Moley said.

Robinhood shares are likely trading higher post Q2 earnings from a combination of the earnings beat and management commentary related to strong trends in "both asset gathering & trading." Its net deposit growth was split 65% from customer contributions and 35% from transfers from other brokerages, Moley highlighted.

Needham: Growth from product launches was a key to helping Robinhood beat Q2 earnings, Todaro said.

"HOOD is doing every thing right in our view from a cost discipline and product initiative standpoint, and we are excited about the Bitstamp and Pluto Capital acquisitions," Todaro said.

Todaro remains concerned about cryptocurrency trading volume, which was up over 100% in the second quarter on a year-over-year basis, but down from a peak in Q1.

"We maintain our H2'24 crypto estimates which assume another step-down in Q3'24, with a bounce-back beginning in Q4'24 that we expect will carry into 2025 as rate cuts likely materialize and the bitcoin halving cycle progresses."   

The analyst cautions on the outlook with an estimate that retail investor appetite into the next quarter could be weak and impact equity and crypto volumes.

New products are helping bring in first-time investors, Todaro says, adding that the company could do more to launch advanced offerings that bring in experienced investors.

JMP Securities: Revenue growth and profitability stand out in Robinhood's "outstanding quarter," Ryan said.

The analyst said revenue, EPS and adjusted EBITDA were all above Street consensus estimates.

"Second quarter results represent the eighth consecutive quarter of positive adjusted EBITDA and the third consecutive quarter of GAAP profitability," Ryan said.

Ryan highlighted that adjusted EBITDA in Robinhood's first six months was higher than the company's entire 2023 figure.

"We are quite encouraged by the acceleration in growth drivers at Robinhood, where it is clear the company still sees significant room for improvement."  

Robinhood could also look for more acquisition opportunities with $5 billion in cash and no debt, Ryan said.

The company also sees strong growth in its retirement accounts as it lures active traders away from other brokerages.

"Management was clear it sees much more to do with active traders from here, and teased that it will be hosting an inaugural ‘Hood Summit' in October."

HOOD Price Action: Robinhood shares are down 2% to $16.90 on Thursday versus a 52-week trading range of $7.91 to $24.88. Robinhood stock is up over 50% in the last year.

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