Robinhood (HOOD) Stock: Is the Trading Platform a Buy After a 33% Pullback?

TLDR

• Robinhood stock has surged 172% year-to-date and trades at $115 per share, up from around $8 two years ago
• Platform assets grew from $102 billion to $343 billion since start of 2024, driven by Gold membership subscriptions
• Third quarter transaction revenue jumped 129% to $730 million, with crypto up 300% and equities up 132%
• Prediction markets product hit $100 million in annualized revenue in less than a year, tracking toward $300 million run rate
• Stock trades at 44x earnings versus fair ratio of 24.3x, suggesting shares are overvalued based on current fundamentals

Robinhood stock closed at $115 per share, marking a 172% gain year-to-date and capping a turnaround that began when shares traded near $8 just two years ago. The trading platform has attracted billions in new assets while expanding into prediction markets and cryptocurrency.

Robinhood Markets, Inc., HOOD

The company reported third quarter revenue of $1.27 billion and earnings per share of $0.61. Both figures topped analyst estimates.

Platform assets have grown from $102 billion at the start of 2024 to $343 billion as of October. The growth came largely from the company’s Gold membership program, which charges $5 monthly or $50 annually for higher interest rates and premium features.

Gold subscribers bring more assets to the platform and trade more frequently than regular users. The subscription model provides steady recurring income separate from transaction fees.

Transaction Revenue Jumps Across Product Lines

Third quarter transaction revenue surged 129% to $730 million. Cryptocurrency trading revenue grew 300% while options jumped 50% and equities rose 132%.

Average revenue per user climbed 82% to $191. Net interest revenue increased 66% to $456 million as the company benefited from higher interest rates.

CEO Vlad Tenev said the platform has traded 4 billion prediction market contracts total. More than 2 billion of those contracts traded in the third quarter alone.

The prediction markets business crossed $100 million in annualized revenue in under a year. Based on October volumes, analysts at Bernstein estimate the product is tracking toward a $300 million annual run rate.

Expansion Plans Target New Markets

Robinhood plans to expand prediction markets beyond the U.S. The company is working with international regulators including the U.K.’s Financial Conduct Authority.

The platform filed an initial registration statement for Robinhood Ventures Fund I. The closed-end fund would give retail investors access to private companies, an asset class typically reserved for institutions.

Management also outlined plans to create investment opportunities in private AI companies. These moves aim to expand the addressable market beyond traditional public stocks and crypto.

Valuation Questions Surface

The stock trades at 47 times projected 2025 earnings. This compares to an industry average of 23.6 times and a peer group average of 20.9 times earnings.

Valuation models calculate a fair price-to-earnings ratio of 24.3 times for Robinhood based on its growth rate, margins, and risk profile. The current trading multiple of 44 times sits well above that level.

One excess returns analysis suggests shares trade 126.8% above estimated fair value. The model accounts for the company’s return on equity of 22.82% and book value of $9.53 per share.

Some investors believe rapid product expansion could justify prices as high as $160 per share. More conservative estimates place fair value closer to $50.

The stock pulled back 12.4% over the past week and dropped 23.2% in the last month. Year-to-date gains remain strong despite recent volatility.

Robinhood’s platform now supports stocks, options, crypto, and prediction markets. The company continues adding products as it works to capture more trading activity from retail investors.

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