Bitcoin ETF launches Are Positive For Robinhood, But Limited Direct Driver of Transaction Revenue: Analyst

Needham analyst John Todaro reiterated a Hold rating on Robinhood Markets, Inc HOOD.

The analyst modestly increased his estimates for fourth-quarter 2023, driven by higher than initially forecast crypto transactional volumes and revenue.

Todaro expects crypto revenue to be near first-quarter 2023 levels and should represent a bright spot and the main driver of transaction-based revenue growth sequentially. 

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Additionally, he increased net interest revenue for 2024 as expectations for the first half of 2024 rate cuts have moderated.

The analyst notes that Bitcoin ETF launches are positive for HOOD but ultimately expects them to be a limited direct driver of transaction revenue in equities or Bitcoin trading.

With share price increasing on the back of the recent gains in crypto and equity markets, Todaro notes HOOD is fairly valued based on his assumptions around transaction and interest revenues in 2024.

The analyst’s fourth-quarter volume estimate incorporates HOOD’s monthly volume data for October/November, which he extrapolated for December, whereby we assume a sequential increase in crypto volumes and sequentially flat equities/options volume. 

Todaro notes that Robinhood participated in the general rise in crypto activity through the quarter and benefited from its U.K. crypto launch on November 30. 

The U.K. launch occurred in stages, with early access for a smaller group of users on November 30 and full platform access in January 2024.

He increased fourth-quarter crypto transaction revenue to $39 million (from $31 million previously), above the $30 million consensus.

In 2024, Todaro estimates transaction-based revenue of $878 million, modestly below consensus. 

The analyst’s 2024 expense estimates are broadly in line with consensus. He assumed operating expense would come down to 95% of revenue from 98% in 2023, suggesting ~300 bps of leverage driven by 12% revenue growth on a largely fixed cost structure (ex-$585 million of one-time stock-based comp and legal expense in 2023).

Todaro projects fourth-quarter revenue and EPS of $445 million and $(0.02).

Price Action: HOOD shares traded higher by 0.32% at $10.95 on the last check Friday.

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